current performance - csus.edu€¦ · web viewcell phone network service providers wield a huge...
TRANSCRIPT
Nokia Strategic Audit
Presented by
Adrian Bogdan
Raminder Bola
Bill Greydanus
Ron Kampling
Jason Ross
1
Table of ContentsIntroduction....................................................................................................................6
Current Situation............................................................................................................6
Current Performance..................................................................................................6
Strategic Posture........................................................................................................6
Mission..................................................................................................................6
Objectives..............................................................................................................7
Strategies................................................................................................................7
Policies...................................................................................................................8
Corporate Governance.................................................................................................10
Board of Directors...................................................................................................10
Top Management.....................................................................................................14
External Environment: Opportunities and Threats......................................................25
Societal Environment...............................................................................................25
Task Environment....................................................................................................27
Internal Environment: Strengths and Weaknesses......................................................32
Corporate Structure..................................................................................................32
Corporate Culture....................................................................................................36
Corporate Resources................................................................................................38
Marketing.............................................................................................................38
Financials.............................................................................................................42
Research and Development.................................................................................46
Operations and Logistics.....................................................................................49
Human Resources Management..........................................................................54
Information Systems............................................................................................59
Summary..................................................................................................................63
Analysis of Strategic Factors.......................................................................................63
Review of Mission and Objectives..........................................................................64
Recommendations, Implementation, and Evaluation..................................................66
2
Recommendation 1: Walk The Walk on Social Practices.......................................66
Recommendation 2: Invest in Battery Alternatives Research.................................68
Recommendation 3: Make Enterprise Services Profitable, Or Sell It.....................69
Recommendation 4: Improve Support for Third-Party Application Developers....69
Recommendation 5: Leverage Brand Strength Into In-Car Communications.........70
Conclusion...................................................................................................................71
Appendix – Risk Factors.............................................................................................72
Foreign exchange risk..............................................................................................75
Structured Finance Credit Risk................................................................................75
Equity price risk.......................................................................................................76
Liquidity risk...........................................................................................................76
Appendix – Medium-Term Financial Goals of Nokia Corporation............................78
Appendix – Nokia Employee Diversity and Global Reach.........................................79
Appendix - Group Executive Board Compensation....................................................83
Appendix - Group Executive Board Biographies........................................................93
Appendix – Biographies of the Directors of Nokia...................................................101
Appendix – Committees of the Board of Directors...................................................104
3
Table of Tables
Table 1. Nokia Board of Directors Compensation, 2003 - 2005 ...................................... 12
Table 2. Nokia Board of Directors Equity Ownership, 2006 vs. 2005 ............................. 13
Table 3. Compensation of Nokia's 5 Highest-Paid Executives, 2005 .............................. 22
Table 4. Stock Options Granted to Nokia Top Management, 2005 ................................. 23
Table 5. Stock Options Held by Nokia Employees, 2005 ................................................ 24
Table 6. EFAS Table for Nokia ........................................................................................ 32
Table 7. Nokia Headcount by Country, 2005 ................................................................... 37
Table 8. Nokia Employee Survey Results on Diversity, 2005 ......................................... 38
Table 9. Brand Value of Mobile Handset Makers 2006 (Interbrand) ................................ 39
Table 10. Nokia Advertising and Promotional Expenditures vs. Revenue ....................... 39
Table 11. Motorola SG&A vs. Revenue ............................................................................ 40
Table 12. Samsung SG&A vs. Revenue ............................................................................ 40
Table 13. Nokia and Motorola Margins by Segment, 2004 and 2005 ............................... 43
Table 14. Nokia 2005 Earnings by Business Group .......................................................... 44
Table 15. Nokia Enterprise Solutions Financials, 2004 vs 2005 ....................................... 45
Table 16. Nokia Research and Development Investment, 2003-2005 ............................. 47
Table 17. Outsourcing Strategy of Orange Mobile .......................................................... 54
Table 18. IFAS Table for Nokia ....................................................................................... 63
Table 19. SFAS Matrix for Nokia .................................................................................... 63
4
Table of Figures
Figure 1. Nokia Corporate Structure................................................................................33
Figure 2. Traditional Matrix Organization Chart (PMI.org)............................................34
Figure 3. Evolution of Nokia's Business...........................................................................35
Figure 4. Nokia Product Development Model..................................................................48
Figure 5. Nokia Facilities Worldwide..............................................................................52
Figure 6. Single-Vendor vs. Multi-Vendor Spares Model...............................................53
Figure 7. Employee Benefit Preferences..........................................................................57
Figure 8. Nokia Communicator 9500...............................................................................62
5
IntroductionWhat is known today as the Nokia Corporation was established in 1865 as a paper
mill on the banks of the Nokia rapids in Finland. The Nokia Corporation evolved into its
current form in 1967 and at the time was involved in many sectors, from the production
of bicycle tires to footwear. In the 1970’s they became more involved in
telecommunications and are now the world’s largest manufacturer of mobile phones.
Current Situation
Current Performance
Nokia turned a €4.6 bil operating profit on €34.2 bil revenue in 2005 (operating
margin of 13.6%), up from €4.3 bil operating profit on €29.4 bil revenue in 2004
(operating margin of 14.7%).
By way of comparison, their most similar competitor, Motorola, reported $4.7bil
operating profit on $36.8 bil revenue in 2005, for an operating margin of 12.8%.
Strategic Posture
Mission
Connecting is about helping people to feel close to what matters. Wherever,
whenever, Nokia believes in communicating, sharing, and in the awesome
potential in connecting the 2 billion who do with the 4 billion who don’t.
If we focus on people, and use technology to help people feel close to what
matters, then growth will follow. In a world where everyone can be connected,
Nokia takes a very human approach to technology.1
Unfortunately, Nokia’s mission statement does not clearly define the company’s
purpose. By sifting through their mission statement and based on their tag line,
“Connecting People,” we have determined that Nokia’s purpose is to connect people
through the use of technology. A simplified and more focused mission statement like
1 http://www.nokia.com/A4126318
6
that could promote a sense of shared expectation in employees and better communicate
what the company is in business to do: create and sell telecommunications equipment.
Objectives
Nokia’s corporate objectives2:
For Nokia to be number one in customer and consumer loyalty
For Nokia to be number one in product leadership
For Nokia to be number one in operational excellence
The Nokia objectives are loosely tied to the company mission. Product leadership,
operational excellence, and customer loyalty will lead Nokia through their mission.
The telecommunications industry is dynamic, so Nokia’s business and functional
objectives are constantly changing. The business and functional objectives that we found
were aligned and consistent with the corporate objectives. The Nokia objectives we
created for each function are consistent with Hunger and Wheelen’s Hierarchy of
Strategy3. The corporate objectives provide long-term, overall direction for the company
and the functional objectives provide competitive and cooperative strategies, and
maximize resource productivity. Detailed information on the functional objectives can be
found in the Corporate Resources section of this report.
The Nokia objectives are consistent with the internal and external environment. The
objectives have specific goals and time frames the Nokia employees can use to guide and
evaluate their performance. The objectives are also flexible enough that they can be
applied to a broadening product and service line. This flexibility will be necessary
because Nokia operates in a dynamic environment.
Strategies
Nokia does not explicitly and publicly state its strategies. The following information
was gathered from the “Strategy” link on the Nokia website4:
At Nokia, customers remain our top priority. Customer focus and consumer
understanding must always drive our day-to-day business behavior. Nokia’s 2 http://press.nokia.com/PR/200411/967543_5.html3 Hunger, David J. and Tomas L. Wheelen. Essentials of Strategic Management. 4th Ed. Prentice Hall,
New Jersey. 20074 http://www.nokia.com/A4126319
7
priority is to be the most preferred partner to operators, retailers, and
enterprises.
Nokia will continue to be a growth company, and we will expand to new markets
and businesses. World leading productivity is critical for our future success. Our
brand goal is for Nokia to become the brand most loved by our customers.
In line with these priorities, Nokia’s business portfolio strategy focuses on five
areas, with each having long-term objectives:
Create winning devices
Embrace consumer Internet services
Deliver enterprise solutions
Build scale in networks
Expand professional services
The items Nokia bolded in their website seem to be their strategic focus. By focusing
on those items, Nokia will be able to meet their objectives and accomplish their mission.
The one constant between all of the strategies is that customers are the top priority.
The Nokia strategies are consistent with the internal and dynamic external
environment. The strategies have specific goals and time frames that the internal
stakeholders can use to guide them and use to evaluate their performance. The strategies
are also flexible enough that they can be applied to a broadening product and service line.
This flexibility will be necessary because Nokia operates in a hyper-competitive
environment. We expand on the internal and external environments later in this report.
Policies
Product Leadership
In June 2006, Business Week ranked Nokia as the 8th Most Innovative Company in
the World. 1,070 executives from top corporations from around the globe participated in
Business Week’s Most Innovative Companies survey. Those executives recognized
Nokia as a leader in product innovation and for creating low cost mobile phones for
emerging markets5. This recognition implies that Nokia’s policies regarding product
5 http://www.businessweek.com/pdfs/2006/0617_top25.pdf
8
leadership, innovation, and R&D are successful, consistent with the mission and
objectives, and compatible with the internal and external environments.
Quality and Customer Service6
Our products and customer experiences are the results of our everyday processes.
Process management means finding the simplest way of operating, in order to
create customer value in a lean manner. Our process thinking covers everything
we do, and processes are continuously improved based on the measures and the
feedback we receive from our customers.
Quality in management is vital for leveraging innovations globally and improving
productivity in general. Our approach to this is platform thinking, process
management and combining fact-based management with values-based
leadership. We have developed a key framework for improvement at Nokia, which
we call the 'Self-Regulating Management System'. It's about management
practices that allow us to run our business in a consistent, effective and fact-
based manner.
Quality and customer services policies have allowed Nokia to connect people in
emerging markets by keeping operating expenses and subsequent mobile phone costs
low. For example, overhead expenses are kept at a minimum by policies such as
requiring all employees to fly coach when traveling for business. In terms of customer
service, Nokia is known, both by its competitors and by its distributors, as having the
most flexible warranty returns policy.
Global Reach
The current mission, objectives, strategies, and policies reflect Nokia’s international
operations. The Nokia objective of being #1 in product leadership served them well in
India. The first ever GSM call in India was made on a Nokia 2110 mobile phone on its
own network in 1995. After entering the Indian market in 1994 Nokia quickly became
the leader in major mobile phone brands in the GSM segment of the India market with
74% market-share7. This growth was possible by focusing on their mission.
6 http://www.nokia.com/A41263687 www.icmr.icfai.org/casestudies/catalogue/Business%20Strategy/Nokia%20Strategy%20in%20India-
excerpts.htm
9
Corporate Governance
Board of Directors
The Nokia Corporation has a nine member Board of Directors – eight independent
directors and an inside Chairman. The eight independent directors come from various
disciplines; there is one woman on the board. The biographies of the board members are
presented in the appendix.
Chairman JORMA OLLILA
Vice Chairman PAUL J. COLLINS
GEORG EHRNROOTH, Board Member since 2000
DANIEL R. HESSE, Board Member since 2005
DR. BENGT HOLMSTROM, Board Member since 1999
PER KARLSSON, Board member since 2002
DAME MARJORIE SCARDINO, Board Member since 2001
KEIJO SUILA, Board Member since 2006
VESA VAINIO, Board Member since 1993
The operations of the company are managed under the direction of the Board of
Directors, within the framework set by the Finnish Companies Act and our
articles of association and the complementary Corporate Governance Guidelines
and related charters as adopted by the Board.
Responsibilities of the Board of Directors8
The Board of Directors represents and is accountable to the shareholders of the
company. The Board's responsibilities are active and not passive and include the
responsibility to regularly evaluate the strategic direction of the company,
management policies and the effectiveness with which management implements its
policies. The Board's responsibilities further include overseeing the structure and
composition of the company's top management and monitoring legal compliance
and the management of risks related to the company's operations. In doing so the
Board may set out annual ranges and/or individual limits for capital
expenditures, investments and divestitures and financial commitments not to be
8 http://www.nokia.com/A4126350
10
exceeded without Board approval.
The Board has the responsibility for appointing and discharging the Chief
Executive Officer and the President and the other members of the Group
Executive Board. Subject to the requirements of Finnish law, the independent
directors of the Board will confirm the compensation and the employment
conditions of the Chief Executive Officer and the President upon the
recommendation of the Personnel Committee. The compensation and employment
conditions of the other members of the Group Executive Board are approved by
the Personnel Committee.
The basic responsibility of the members of the Board is to act in good faith and
with due care so as to exercise their business judgment on an informed basis in
what they reasonably and honestly believe to be the best interests of the company
and its shareholders. In discharging that obligation, the directors must inform
themselves of all relevant information reasonably available to them.
The responsibilities of the Audit, Personnel, and Corporate Governance and
Nomination Committees are described in the appendix.
Compensation of the Board of Directors 2003-2005
Since Nokia is a publicly traded company, the compensation of the board members is
a matter of public record. In recent years, the board members have been compensated
with a mix of cash and equity. The tables below show their annual compensation for the
past three years, as well as the amount of stock held by each director. The directors
receive slightly more than half their compensation as Nokia stock (and the other half as
cash) - that compensation mix is broadly consistent with aligning director and
shareholder goals. All but the newest two directors have personal holdings of hundreds
of thousands of euros in Nokia stock, and two have several millions of euros of Nokia
stock – again, consistent with the principle of aligning director and shareholder goals.
11
Chairman Vice Chairman Other MembersAdditional Annual
Retainers
Year
Gross
Annual Fee
(EUR)
Shares
received1
Gross
Annual Fee
(EUR)
Shares
received¹
Gross
Annual Fee
(EUR)
Shares
received¹
2003 150 000 4 032 125 0002 3 360 100 000 2 688Chairman of the Audit
Committee and Personnel
Committee, each EUR 25 000
2004 150 000 4 834 125 0002 4 028 100 0003 3 223Chairman of the Audit
Committee and Personnel
Committee, each EUR 25 000
2005 165 000 5 011 137 5004 4 175 110 000 5,6 3 340
Chairman of the Audit
Committee and Personnel
Committee, each EUR 25 000;
Each member of the Audit
Committee, EUR 10 000
1 As part of the gross annual fee for that year
2 The 2003 and 2004 fees of Paul Collins amounted to totals of EUR 150 000 per year, consisting of a fee of EUR 125 000 for services as Vice
Chairman of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. As part of the total remuneration, Mr. Collins
has received a total of 4 032 Nokia shares in 2003, and 4 834 Nokia shares in 2004.
3 The 2004 fee of Per Karlsson amounted to a total of EUR 125 000, consisting of a fee of EUR 100 000 for services as member of the Board
and EUR 25 000 for services as Chairman of the Audit Committee. As part of the total remuneration, Mr. Karlsson has received a total of 4
029 Nokia shares in 2004.
4 The 2005 fee of Mr Paul Collins amounts to a total of EUR 162 500, consisting of a fee of EUR 137 500 for services as Vice Chairman of the
Board and EUR 25 000 for services as Chairman of the Personnel Committee. As part of the total remuneration, Mr Collins has received a
total of 4 935 Nokia shares.
5 The 2005 fee of Per Karlsson amounts to a total of EUR 135 000, consisting of a fee of EUR 110 000 for services as Member of the Board
and EUR 25 000 for services as Chairman of the Audit Committee. As part of the total remuneration, Mr. Karlsson has received a total of 4
100 Nokia shares.
6 The 2005 fee of each of Georg Ehrnrooth, Vesa Vainio and Arne Wessberg amounts to a total of EUR 120 000 consisting of a fee of EUR 110 Table 1. Nokia Board of Directors Compensation, 2003 - 2005
12
Position Shares1) Change4) ADSs Change4)
Jorma Ollila2) Chairman 286,468 0 - -
Paul J. Collins Vice Chairman - - 122,626 -
Georg Ehrnrooth3) Member 314,996 - - -
Daniel R. Hesse Member - - 5,696 -
Bengt Holmström Member 16,606 - - -
Per Karlsson3) Member 19,538 - - -
Marjorie Scardino Member - - 14,018 -
Keijo Suila Member 2,570 - - -
Vesa Vainio Member 27,784 - - -
Total 667,962 142,340
1) The number of shares includes not only shares acquired as compensation for services rendered as a member of the
Board of Directors, but also shares acquired by any other means.2) For Mr. Ollila's holdings of stock options, see the table Group Executive Board, Options link.3) Mr. Ehrnrooth's and Mr. Karlsson's holdings include both shares held personally and shares held through a company.4) Changes are compared to the previous month. Possible trades of the board members can be reviewed by clicking the
relevant number in the Change column.
Table 2. Nokia Board of Directors Equity Ownership, 2006 vs. 2005
Successful growth of a company requires experienced board members. All of the
board members have executive management experience with multi-national companies
ranging from the banking industry to media outlets to telecommunications companies.
They have all served as board members on at least one other board. The wide range of
experience of its board members provides Nokia access to a great deal of connections in
areas such as finance and the media. All but two of the members have at least a Masters
degree. The directors’ educations range from law to science, from philosophy to business
13
administration. Nokia suffered growing pains when they expanded into India in spite of
an experienced board. The board should elect members with diverse cultural
backgrounds to help alleviate cultural issues during global expansion.
Top Management
Group Executive Board9
Nokia’s Group Executive Board (top management) is responsible for managing
the operations of the company. The Chairman and the members of the Group
Executive Board are elected by the Board of Directors. Only the Chairman of the
Group Executive Board can be a member of both the Board of Directors and the
Group Executive Board. The current members of our Group Executive Board are
set forth below:
Olli-Pekka Kallasvuo: Chairman
Group Executive Board member since 1990. Group Executive Board
Chairman as from June 1, 2006.
LL.M. (University of Helsinki).
President and COO of Nokia Corporation 2005-2006, Executive Vice
President and General Manager of Mobile Phones 2004-2005, Executive
Vice President, CFO of Nokia 1999-2003, Executive Vice President of
Nokia Americas and President of Nokia Inc. 1997-1998, Executive Vice
President, CFO of Nokia 1992-1996, Senior Vice President, Finance of
Nokia 1990-1991.
Member of the Board of Directors of EMC Corporation. Member of
Citigroup International Advisory Board.
Robert Andersson: Executive Vice President, Customer and Market
Operations
Group Executive Board Member since October 1, 2005. Joined Nokia in
1985.
Master of Business Administration (George Washington University),
Master of Science (Econ.) (Swedish School of Economics and Business
9 http://www.nokia.com/A4126335
14
Administration in Helsinki).
Senior Vice President of Customer and Market Operations, Europe,
Middle East and Africa 2004-2005, Senior Vice President of Nokia Mobile
Phones in Asia-Pacific 2001-2004, Vice President of Sales for Nokia
Mobile Phones in Europe and Africa 1998-2001.
Simon Beresford-Wylie: Executive Vice President and General Manager
of Networks
Group Executive Board member since February 1, 2005. Joined Nokia
1998.
Bachelor of Arts (Economic Geography and History) (Australian National
University).
Senior Vice President of Nokia Networks, Asia Pacific 2003-2004, Senior
Vice President, Customer Operations of Nokia Networks 2002-2003, Vice
President, Customer Operations of Nokia Networks 2000-2002, Managing
Director of Nokia Networks in India and Area General Manager, South
Asia 1999-2000, Regional Director of Business Development, Project and
Trade Finance of Nokia Networks, Asia Pacific 1998-1999, Chief
Executive Officer of Modi Telstra, India 1995-1998, General Manager,
Banking and Finance, Corporate and Government business unit of Telstra
Corporation 1993-1995, holder of executive positions in the Corporate
and Government business units of Telstra Corporation 1989-1993, holder
of executive, managerial and clerical positions in the Australian
Commonwealth Public Service 1982-1989.
Member of the Board of Directors of the Vitec Group.
Mary T. McDowell: Executive Vice President and General Manager of
Enterprise Solutions
Group Executive Board member since 2004. Joined Nokia 2004.
Bachelor of Science (Computer Science) (College of Engineering at the
University of Illinois).
Senior Vice President, Strategy and Corporate Development of Hewlett-
Packard Company 2003, Senior Vice President & General Manager,
15
Industry-Standard Servers of Hewlett-Packard Company 2002-2003,
Senior Vice President & General Manager, Industry-Standard Servers of
Compaq Computer Corporation 1998-2002, Vice President, Marketing,
Server Products Division of Compaq Computer Corporation 1996-1998.
Holder of executive, managerial and other positions at Compaq Computer
Corporation 1986-1996.
Hallstein Moerk: Executive Vice President, Human Resources
Group Executive Board member since 2004. Joined Nokia 1999.
Diplomekonom (Econ.) (Norwegian School of Management).
Holder of various positions at Hewlett-Packard Corporation 1977-1999.
Member of the Board of Advisors for Center for HR Strategy, Rutgers
University.
Tero Ojanperä: Executive Vice President, Chief Technology Officer
Group Executive Board member since January 1, 2005. Joined Nokia
1990.
Master of Science (University of Oulu), Ph.D. (Delft University of
Technology, The Netherlands).
Executive Vice President & Chief Strategy Officer 2005-2006, Senior Vice
President, Head of Nokia Research Center 2002-2004. Vice President,
Research, Standardization and Technology of IP Mobility Networks,
Nokia Networks 1999-2001. Vice President, Radio Access Systems
Research and General Manager of Nokia Networks in Korea, 1999. Head
of Radio Access Systems Research, Nokia Networks 1998-1999, Principal
Engineer, Nokia Research Center, 1997-1998.
Chairman of Nokia Foundation. A member of Young Global Leader.
Niklas Savander: Executive Vice President, Technology Platforms
Group Executive Board Member as of April 1, 2006. Joined Nokia 1997
Master of Science (Eng.) (Helsinki University of Technology), Master of
Business Administration (Swedish University of Economics, Helsinki).
Senior Vice President and General Manager of Nokia Enterprise
Solutions, Mobile Devices Business Unit 2003-2006; Senior Vice
16
President, Nokia Mobile Software, Market Operations 2002-2003; Vice
President, Nokia Mobile Software, Strategy, Marketing & Sales 2001-
2002; Vice President and General Manager of Nokia Networks, Mobile
Internet Applications 2000-2001; Vice President of Nokia Networks,
Marketing 1998-2000; Vice President of Nokia Networks, Network
Systems, Marketing 1997-1998. Holder of executive and managerial
positions at Hewlett-Packard Company 1987-1997.
Member of the Board of Directors of Tamfelt Oyj. Member of the Board of
Directors and secretary of Waldemar von Frenckells Stiftelse.
Richard A. Simonson: Executive Vice President, Chief Financial Officer
Group Executive Board member since 2004. Joined Nokia 2001.
Bachelor of Science (Mining Eng.) (Colorado School of Mines), Master of
Business Administration (Finance) (Wharton School of Business at
University of Pennsylvania).
Vice President & Head of Customer Finance of Nokia Corporation 2001-
2003, Managing Director of Telecom & Media Group of Barclays 2001,
Head of Global Project Finance and other various positions at Bank of
America Securities 1985-2001.
Member of the Board of Directors of Electronic Arts, Inc. Member of the
Board of Trustees of International House - New York.
Veli Sundbäck: Executive Vice President, Corporate Relations &
Responsibility of Nokia Corporation
Group Executive Board member since 1996. Joined Nokia 1996.
LL.M. (University of Helsinki).
Executive Vice President, Corporate Relations and Trade Policy of Nokia
Corporation 1996-. Secretary of State at the Ministry for Foreign Affairs
1993-1995, Under-Secretary of State for External Economic Relations at
the Ministry for Foreign Affairs 1990-1993.
Member of the Board of Directors of Finnair Oyj. Member of the Board
and its executive committee, Confederation of Finnish Industries (EK),
Vice Chairman of the Board, Technology Industries of Finland, Vice
17
Chairman of the Board of the International Chamber of Commerce,
Finnish Section, Chairman of the Board of the Finland-China Trade
Association.
Anssi Vanjoki: Executive Vice President and General Manager of
Multimedia
Group Executive Board member since 1998. Joined Nokia 1991.
Master of Science (Econ.) (Helsinki School of Economics and Business
Administration).
Executive Vice President of Nokia Mobile Phones 1998-2003, Senior Vice
President, Europe & Africa of Nokia Mobile Phones 1994-1998, Vice
President, Sales of Nokia Mobile Phones 1991-1994, 3M Corporation
1980-1991.
Chairman of the Board of Directors of Amer Group Plc.
Dr. Kai Öistämö: Executive Vice President and General Manager of
Mobile Phones
Group Executive Board Member since October 1, 2005. Joined Nokia in
1991.
Doctor of Technology (Signal Processing), Master of Science
(Engineering) (Tampere University of Technology)
Senior Vice President, Business Line Management of Mobile Phones
2004-2005, Senior Vice President, Mobile Phones Business Unit, Nokia
Mobile Phones 2002-2003, Vice President, TDMA/GSM 1900 Product
Line of Nokia Mobile Phones 1999-2002, Vice President, TDMA Product
Line 1997-1999, various technical and managerial positions in Nokia
Consumer Electronics and Nokia Mobile Phones 1991-1997.
Member of the Board of Directors of the Finnish Funding Agency for
Technology and Innovation (Tekes). Chairman of the Research and
Technology Committee of the Confederation of Finnish Industries EK.
Based on these biographies, published by Nokia, we observe the chief characteristic
of Nokia’s top management is that they are highly educated and have much experience in
multi-national technology companies. Their backgrounds include international
18
experience, either from a previous position or from serving on a corporate board. That
international experience is necessary for managing the operations of a global player such
as Nokia. Although Nokia actively acquires companies, none of Nokia’s Group
Executives come from the acquired companies.
Nine Nokia executives were internally promoted, while the other two were external
hires (McDowell from HP and Sundback from the Finish national government). Eight of
the eleven executives have been at their current position for less than three years. This
executive turnover suggests that the Board of Directors has been actively trying to shake
things up.
Strategic Management
The past two years have been turbulent for Nokia management. Because there have
been so many new executives, management has yet to establish a systematic approach to
strategic management. This strategic audit can serve as a foundation for strategic
management of the company going forward.
Turnover notwithstanding, the Group Executive Board has recently become highly
involved in the strategic management process. Regarding the top priorities in 2005, CEO
Olli-Pekka stated “On an 18- to 24-month strategic view, top management last year set
out five strategic priority areas for the company's continued industry leadership.”
Product competitiveness
Customer satisfaction
R&D effectiveness
Demand-supply network alignment
End-to-end capability
In terms of Nokia's broader long-term strategy, Olli stressed that continuity would be
key10.
Nokia top management encourages two-way communication throughout the
organization, including lower-level management. “Open communication is part of the
Nokia way of operating. We gain commitment from our employees and employee
representatives through ongoing dialogue and employee feedback and participation. Our
people have several different channels for expressing their opinions and concerns as well
10 http://www.nokia.com/link?cid=EDITORIAL_4151
19
as for driving positive change in our organization, principles and policies”11. Nokia
believes in shared management principles. Because most of the Group Executive Board
has been promoted from within, a natural, informal line of communication exists with the
top executives and the different Nokia functions in which they have worked.
Nokia corporate guidelines allow the CEO to be a Director, but the current CEO has
not yet been elected to the Board. Top management officially meets twice a year with the
Board of Directors Audit Committee; the only other formal interaction executives have
with the Board is when the Board decides the annual bonus for each top executive. As a
practical matter, most companies do not publish a formal relationship between top
management and the board, so the absence of that disclosure at Nokia isn’t particularly
concerning.
Nokia claims that its strategic decisions are made ethically in a socially responsible
manner. Within the organization, top management emphasizes the Code of Conduct12:
At Nokia, how we do business is everybody's business. And we believe that ethical
business behavior can only be realized by an equal commitment from every
employee. The strong message we are sending across every level and
geographical area of our organization is this: we take our responsibilities
seriously, and we support each other in achieving our ethical goals through our
Code of Conduct.
2005 highlights
In 2005, Nokia's Executive Board made a decision to revise our Code of Conduct.
This was in a move to ensure consistent business practices across an increasingly
diverse organization as well as better respond to increasing external regulations.
We developed a significant training and communication campaign designed to
bring the new Code of Conduct alive for our people, as well as make sure that
everyone everywhere in the organization is committed to the code and its
messages.
11 http://www.nokia.com/A414008512 http://www.nokia.com/A4140069
20
As a global company, Nokia realizes their social responsibility. "It is clear that socio-
economic development and telecommunications growth are intimately linked." (Veli
Sundbäck, Executive VP, Corporate Relations and Responsibility).
As a market leader with global operations, we accept the responsibility that
comes with our position. The best contribution Nokia can make to sustainable
development is to carry out its business in a responsible way. This premise forms
the basis of our commitment to creating ethically sound policies and principles
and implementing corporate responsibility programs13.
Does Nokia put these values into practice? One advocacy group claims they do not.
The Centre for Research on Multinational Corporations (SOMO) accuses Nokia of
violating its Social Responsibility policy, and questions its commitment to the
environment and basic human rights. We will go into this issue in more detail in the Task
Environment section of this report; this perception, right or wrong, suggests that Nokia
may be well-advised to be more socially responsible when making strategic decisions.
Management Compensation (10)
The annual compensation of Nokia’s five most highly paid executive officers for
2005 is detailed in the following table:
Cash compensation
Name and Principal Position in 2005 YearBase
salary (EUR)
Cash incentive
payments (EUR)
OtherAnnual
Compensation
Other Compen-
sation (EUR)
Jorma Ollila, Chairman and Chief
Executive Officer
2005
2004
2003
1 500
000
1 475 238
1 400 000
3 212 037
1 936 221
2 253 192
*
*
*
165 000
150 000
150 000
Pekka Ala-Pietilä,
Until October 1, 2005, President of Nokia
Corporation and Head of Customer and
Market Operations
2005
2004
2003
717 000
717 000
711 279
946 332
479 509
520 143
*
*
*
-
-
-
Olli Pekka Kallasvuo,
As of October 1, 2005, President and COO;
Until September 30, 2005, EVP and General
Manager of Mobile Phones
2005
2004
2003
623 524
584 000
575 083
947 742
454 150
505 724
*
*
*
-
-
-
13 http://www.nokia.com/A4252328
21
Anssi Vanjoki, EVP and General
Manager of Multimedia2005 476 000 718 896 * -
Richard Simonson, EVP, Chief
Financial Officer2005 461 526 634 516 * 358 786
Table 3. Compensation of Nokia's 5 Highest-Paid Executives, 2005
The equity portion of top management’s compensation comes in the form of stock
options. Those option grants for 2005 are detailed in Table 4. Nokia also discloses the
number of stock options granted to all employees, and the fraction of those options which
are granted to top management, in Table 5.
22
Number of Stock Options1Total realisable value of Stock
Options, December 31, 2005 EUR2
Stock
Option
category
Exercise
price per
share EUR
Exercisable Unexercisable Exercisable3 Unexercisable
Olli
Pekka
Kallasvuo
2005
4Q14.48 0 100 000 0 97 000
Robert
Andersson
2005
4Q14.48 0 28 000 0 27 160
Simon
Beresford
Wylie
2005
2Q12.79 0 60 000 0 159 600
Pertti
Korhonen
2005
2Q12.79 0 60 000 0 159 600
Mary
McDowell
2005
2Q12.79 0 60 000 0 159 600
Hallstein
Moerk
2005
2Q12.79 0 40 000 0 106 400
Tero
Ojanperä
2005
2Q12.79 0 40 000 0 106 400
Richard
Simonson
2005
2Q12.79 0 60 000 0 159 600
Veli
Sundbäck
2005
2Q12.79 0 40 000 0 106 400
1 Number of stock options equals the number of underlying shares represented by the option entitlement.2 The realizable value of the stock options is based on the difference between the exercise price of the options and the
closing market price of Nokia shares on the Helsinki Stock Exchange as of December 30, 2005 of EUR 15.45.3 During 2005, there were no gains realized upon exercise of stock options to report, nor were any share based incentive
grants settled for the members of the Group Executive Board.4 Mr. Ala-Pietilä resigned as member of the Group Executive Board effective October 1, 2005, and ceased employment
with us on January 31, 2006. Dr. Yrjö Neuvo resigned as member of the Group Executive Board effective October 1, 2005,
and retired from Nokia effective December 31, 2005. The information relating to stock options held and retained by Mr.
Ala-Pietilä and Dr. Neuvo as of the date of termination of employment.
Table 4. Stock Options Granted to Nokia Top Management, 2005
23
Shares %1
Stock
options %2
Group
Executive
Board
632
8330.015
6 626
1574.586
Other
employees* *
137
869 0304 95.414
Total
144
495 187 100
1 The percentage is calculated in relation to the outstanding share capital and total voting rights of the company as of
December 31, 2005, excluding shares held by the Group as of that date.2 The percentage is calculated in relation to the total outstanding equity plans, i.e. stock options, performance shares and
restricted shares, as applicable, as of December 31, 2005.3 Performance shares at threshold represent the original grant. At maximum performance, the settlement amounts to four
times the number of performance shares originally granted (at threshold).4 The number includes the total number of stock options outstanding, consisting of 128 091 354 options held by other
employees and 9 777 676 options sold to the market.* no information available.
Table 5. Stock Options Held by Nokia Employees, 2005
As Table 3 and Table 4 show, stock options are not as significant a component of
executive compensation as cash incentives based on performance or base salary are. For
example, if the top executive team were able to double Nokia’s price from the 2005 4Q
grant price of €14.18, Mr. Kallasvuo would stand to gain roughly €1.4mil on his 2005
option grant. That gain is only about the size of his base salary for 2005, and half the size
of the performance-based cash compensation he received. This compensation structure
emphasizes performance, but still carries a small risk of management misusing their stock
options.
Although the Nokia Board of Directors feels that this new group of executives has
sufficient skills to cope with future challenges, they may not the have the diverse
experience needed to cope with likely future challenges. Nokia is receiving competition
from unlikely sources such as Apple and their new iPhone. Mobile service providers are
also entertaining the idea of manufacturing their own mobile phones. This new market
entry would greatly hurt Nokia’s market share because the majority of Nokia mobile
phones are sold through the mobile service provider. To deal with this hyper-
24
competition, Nokia may need to expand their services to compete with the new
competition. Promoting from within has historically been successful for most companies,
but in a hyper-competitive environment like telecommunications equipment, hiring a few
managers from the non-traditional competitors will bring in fresh ideas and may help
Nokia move into new industries.
External Environment: Opportunities and Threats
Societal Environment
Nokia is a worldwide company with 58,000 employees working in 10 countries
across the globe. As a global company, Nokia is subject to a number of forces that
influence how it does business. At home, Nokia is considered a leader of industry in
Finland. Over 23,000 of Nokia’s employees are based in Finland. Finnish society
follows a social-democratic model, and Finland has some of the best social programs in
the European Union. Of course, these programs come at a high cost to businesses
including high corporate taxes and low productivity. Nokia pays its share of the burden
for these programs. Nokia is challenging Finnish society to gauge the benefits of these
programs. They are leading the way in changing the business climate in Finland by
thriving in an environment of competition and globalization. Nokia has a heavy
influence in Finland, since it is one of the largest employers. The government is
responding to this challenge. Within the past year, the government passed laws to reduce
corporate taxes from 29% to 26%14. This tax reduction represents a significant savings to
the company’s bottom line. These socio-political issues represent a future threat; Finnish
society may need to change in order for Nokia to have a level playing field to compete
upon as it enters emerging markets across the globe.
Nokia recognizes that in order to remain competitive it must recruit qualified
candidates in its various job markets and retain its talented employees. Nokia is a values-
based organization that values diversity, performance-based rewards, professional and
personal growth, and work-life balance. One way to accomplish Nokia’s recruitment
goals is to offer a variety of internships focused on attracting talent at an early stage of
14 Deloitte World Tax Advisors website, January 20, 2007: http://www.deloitte.com/dtt/cda/doc/content/WTA0407.pdf
25
careers. Over the past few years Nokia’s Equity Program15 has offered key employees
stock options based on key performance. This issue represents a current and future
opportunity for Nokia. Failing to capitalize on this opportunity to recruit and retain talent
would leave Nokia less competitive in the future.
Part of the company’s strategy to maintain a skilled and talented workforce has been
its support for a quality education system in at its home base. Finland has been effective
in building an education system that is able to provide a highly skilled workforce. The
upper level education system is composed of universities and polytechnic vocational
schools. Each year Finland graduated approximately 10k highly skilled workers capable
of working in the technology sectors16. Nokia is one of the key beneficiaries of this
system.
In addition, as Nokia expands into the global market they are looking for partners in
countries such as China and India. Finland has partnered with India to create an Indo-
Finnish ICT (Information and Communications Technology) cluster17. This partnership
has removed many trade barriers. The result is better access to a highly educated work
force, lower wages, and access to an Indian economy soon to become 60% the size of the
U.S. economy. One example of the success of the ICT is the agreement to build a Nokia
manufacturing plant in Chennai, India. Nokia has worked closely with the Indian
government to develop this alliance and create manufacturing jobs that will benefit both
parties.
As new markets are created in developing countries, Nokia is experiencing
difficulties in expanding its supply channels. This issue represents a current threat to the
organization. Inefficient distribution channels erode a company’s profit margins. Nokia
is experiencing a variety of issues in developing new supply channels. Nokia must find
dependable distributors, warehouses, and product shipping logistics operations. Some of
this infrastructure may need to be built from the ground up. Others may be established
through partnerships. All of this infrastructure adds cost and takes time before the market
15 Nokia website, January 20, 2007,http://www.nokia.com/NOKIA_COM_1/About_Nokia/Press/Press_Events/
Nokia_Press_Conference_in_Q4_2005/nokia_equity_program.pdf16 American.edu website, January 20, 2007, http://www.american.edu/carmel/jk9488a/ITWork.htm17 India Business website, January 20, 2007 http://timesofindia.indiatimes.com/articleshow/1106853.cms
26
becomes profitable. Nokia will need to create efficiencies and find economies of scale in
their operation to meet the need of these new markets without depleting profit margins.
There are other issues that have the potential to affect Nokia’s profit margin. Nokia’s
credit policy is an example of significant risk. This current threat has the potential to
cause Nokia to lose millions if buyers are not able to repay. Political instability in
emerging markets heightens this risk. Many of the countries that are part of the emerging
markets such as in China, Africa, and Eastern Europe have no infrastructure to support
these new industries. Creation of new infrastructure requires close work with
governments to ensure security and foster communication industry growth. This rapid
influx of capital has the potential to spawn corruption. Corruption and poor oversight of
business activities increase the risk in those investments. If a government decides not to
abide by its agreement with Nokia there is a possibility they could lose the money they
invest in that market. This concern is another key risk mentioned in Nokia’s 2005
Annual Report18.
Task Environment
Nokia’s position as a company expanding in emerging markets creates a strain on the
financial position of the company. Political issues in emerging markets create the
potential for instability in those economies. These instabilities can have adverse affects
on a country’s currency. The potential for currency fluctuations in these countries may
send profit margins for Nokia up and down.
In November of 2006, the Centre for Research on Multinational Corporations
(SOMO) reported that Nokia and other manufacturers were operating or partnering with
manufacturing facilities that violated fair wage laws and unsafe working conditions19.
This report claimed a series of violations ranging from exposing workers to hazardous
cancer-causing chemicals to forcing employees to work overtime without proper
compensation. In addition, there are other threats to the environment itself. Chemicals
used during manufacturing and by-products dumped in waterways or on land create
serious concerns to Nokia and other manufacturers. These concerns are a current threat 18 Nokia.com website; January 20, 2007http://timesofindia.indiatimes.com/articleshow/1106853.cms19 Somo.nl website; January 20, 2007http://www.somo.nl/html/paginas/pdf/High_Cost_of_Calling_nov_2006_EN.pdf
27
that is of serious concern in the developing countries which have little or no
environmental laws and oversight. Developing countries in which Nokia is establishing
manufacturing facilities, such as China, India, and the Philippines, are being closely
watched by environmental advocacy groups. SOMA, as an example, is fighting a battle
in the media and courts to hold manufacturers responsible.
SOMO accuses Nokia of violating its Social Responsibility policy and questions its
commitment to the environment and basic human rights. This threat has serious current
and future implications. Not only does this report damage Nokia’s credibility, it creates a
significant financial risk. Many potential improvements to their manufacturing facilities
could increase operating expenses.
The technology used in cell phones has been in existence for many years.
Nevertheless, there are ongoing health concerns related to the long-term effects of the
electromagnetic radiation transmitted by cell phones. Nokia’s risk management, legal
services, and research departments actively work to minimize these concerns. There is a
close watch on studies, litigation, and other research to address this issue. The battle is to
maintain trust and confidence in cell phones and to maintain the perception of no real
danger to the health and safety of consumers.
As new emerging markets create a greater demand for cell phone providers, the
demand for mobile devices will increase. Nokia, like other mobile device manufacturers,
sells to a relatively small customer base since it sells the majority of its products to cell
phone service providers. This observation is not to say that Nokia does not have a strong
market share - across the earth, two of every three cell phones were made by Nokia - but
rather that the market could function as an bilateral oligopoly. If Nokia experiences a rift
with these service provider customers, the outcome could be a substantial loss of market
share. Studies have concluded that cell phone users are loyal to their cell phone network
providers more than to the cell phone manufacturers20. This loyalty may be related to the
fact that cell phones are sold primarily through cell phone provider-branded retail outlets,
not through manufacturer-branded retail outlets. Some of this loyalty is also based on the
structure of cell phone network services. Customers are required to sign service contracts
for a set period of time, usually two years. In addition, the cell phone service providers 20 ibnlive.com, website, January 20, 2007, http://www.ibnlive.com/news/cell-phone-users-are-not-a-loyal-lot/23329-7.html
28
subsidize the cost of the phones and offer the phones at a fraction of their cost. Because
of this lack of loyalty, Nokia’s growth is dependent on the growth of cell phone providers
and their opening of new markets. If they do not expand into new markets, Nokia sales
will suffer.
Besides the dependency on the cell phone network service providers, there is another
concern that threatens Nokia’s market share in the future. Several large cell phone
network service providers are considering developing their own brand of phones. These
cell phone service providers have begun conversations with a number of companies in
China, the Philippines, and India who have the technology and own the intellectual
property to manufacturer new brands of phones.
Other cell phone network service providers are looking into building their own
factories and manufacturing their own mobile devices. This future threat could create
new competition from ODM (Original Design Manufacturer) houses – companies which
act as contract design and manufacturing houses21. These companies, such as BenQ and
Flextronics, have worked as contract designers for Nokia, on products which Nokia has
manufactured. In the future, BenQ and Flextronics could decide to compete directly
against Nokia, either by selling directly to the cell phone network service providers, or by
selling the product directly to consumers.
Cell phone network service providers wield a huge amount of bargaining power. The
relationship and buying power which cell phone service providers have with the cell
phone manufacturers, including Nokia, is significant because of their control over cell
phone end users. Cell phone service providers such as Cingular, T-Mobile, and Verizon
create significant switching-costs for the end-user. They utilize term contracts, control
over cell phone telephone numbers, email accounts, and other processes to make it
expensive or difficult to change service. In addition, end-users pay high costs for
replacing their hand-set within the term of their contracts. The U.S. government has
passed legislation reducing some of the obstacles for end-users. With the passing of the
Cell Phone Number Portability Act, end-users no longer fear leaving their service
provider. Consumers may change service and take their number with them in many
cases. This type of legislation is unique and creates unintended consequences. The 21 SOMO website; January 20, 2007http://www.somo.nl/html/paginas/pdf/High_Cost_of_Calling_nov_2006_EN.pdf
29
majority of consumers do not have this type of protection and they are forced to pay high
switching costs. This power of customers, called out in Porter’s 5 Forces Theory22,
suggests that Nokia and other cell phone manufacturers are threatened by the future
possibility of substitute products being introduced into the market place.
Competition in the mobile technology industry is intense. Nokia recognizes that it
must maintain a competitive product portfolio. They must have a variety of products that
meet user needs and offer a variety of functions including video, instant messaging,
internet access, and productivity. All of these options must be provided in a variety of
devices that come in all shapes and sizes.
A diverse portfolio of products is required to remain competitive in the mobile
communications industry as a whole. Nokia, like its competitors, is experiencing
constant changes in technology and cell phone service provider demands. With the
advent of 3G or “Third Generation” mobile device technology, Nokia must devote
significant expenditures in R&D. The changing technology landscape creates the future
threat of customers becoming competitors, such as Cingular who has considered creating
its own Brand of cell phones.
Manufacturers are constantly introducing new innovations to the mobile
telecommunications device industry. Recently, new innovative products were introduced
at the Consumer Electronics Show (CES) in Las Vegas, Nevada23. Motorola introduced
its new music phone, the MotoRizr Z6. This device uses a Linux-based media player to
play MP3s. This new product is an example where Motorola is heeding the demand to
create multiuse devices that are favored by consumers for entertainment, personal data
assistant (PDA) functions, and cell phone functions. Nokia recently introduced its N
Series of devices to address its need to compete in product categories such as smart
phones, thinner flip phones, and mobile Internet applications. Nokia, with its new partner
Visa, introduced technology to be used in their mobile cell phones to enable mobile
payments. This technology is another example of integrating other functions into the
22nettlab.ttk website, January 20, 2007 http://www.netlab.tkk.fi/opetus/s383041/k06/Lectures/L8_Competition.pdf
23 Forbes.com website, January 20, 2007http://www.forbes.com/2007/01/11/ces-apple-iphone-tech-media-cx_rr_0112ces-
ceswrapup_slide_3.html?thisSpeed=7000
30
mobile devices. Besides new innovation in current mobile device manufacturers, there
are those who represent a future threat to manufacturers like Nokia. In San Francisco,
during the same timeframe as the CES, Apple introduced its new iPhone. The iPhone has
all the features of the iPod, plus cell phone capabilities and an internet communications
feature with e-mail, web browsing, maps, and search features. Nontraditional cell phone
manufacturers such as Apple represent a new thread to the industry with substitute
products. We can expect that this trend to continue and apply new pressure on Nokia and
its competitors.
Product substitutions such as Skype and other VoIP products represent another
future threat to the cell phone and telecommunications industry. These products offer
low cost alternatives to cell phone service plans. While these products have had
challenges in gaining significant market share, they do demonstrate that other
technologies are available. To counter this threat, Nokia and Skype announced at the
CES that they were partnering to create a product that would allow users to be freed from
their desktop24. It involves using Nokia’s N800 Internet Tablet to allow for mobile
Internet. This way a user can use Skype away from their PC.
In another development Nokia recently introduced a product to block peer to peer file
sharing and VoIP calls. The centralized solution is implemented as a software upgrade to
the Nokia Flexi Intelligent Service Node (ISN) and will be commercially available during
the first half of 2007. The Nokia Peer-to-Peer Traffic Control solution now gives
operators the means to analyze and manage such traffic. It allows them to apply their
business models by prioritizing the traffic of preferred services and partners, maximize
their return on network investment, and avoid becoming only “bit pipes” for other content
providers.25 These are only a few examples where Nokia is developing new products to
address the threat of substitute products or to take advantage of the threat and create
opportunities. Nokia will need to continue its efforts by funding adequate R&D levels to
remain competitive in this fasting changing environment.
24 Cellular-news.com website, January 21st, 2007,http://www.cellular-news.com/story/21282.php25 Cellular-news.com website, January 20, 2007,http://www.cellular-news.com/story/20594.php
31
External Factors Weight Rating
Weighted Score
Missing Score Comments
Opportunties Recruiting/retaining talent 0.05 5 0.25 0 InternshipsIncrease market share 0.1 4 0.4 0.1Develop emerging markets 0.15 4 0.6 0.15 China, India, PhillippinesNew Technology 0.1 3 0.3 0.2 Visa Partnership
Threats Finnish social-democracy 0.05 2 0.1 0.15 Changing CultureDistribution channels 0.05 3 0.15 0.1 Adding infrastructureForEx risk 0.1 2 0.2 0.3 Volatile economiesHuman Rights issues 0.05 3 0.15 0.1 SOMO reportEnvironmental/Health concerns 0.05 3 0.15 0.1 ElectromagneticCustomer Credit lines 0.05 3 0.15 0.1Competition 0.15 4 0.6 0.15 iPhoneProduct Substitutes 0.1 2 0.2 0.3 Skype
Totals 1 3.25
Table 6. EFAS Table for Nokia
Internal Environment: Strengths and Weaknesses
Corporate Structure
Nokia makes excellent use of a flat and decentralized organization structure. A flat
organizational structure is very important in an environment where quick decision-
making is needed, such as the wireless cellular environment. Competition is very intense
in the cell phone business, where the big players are behemoths of technology such as
Samsung, Motorola, Sony Ericson, Siemens, and LG.
We will first assess Nokia’s corporate structure by examining the top management.
Out of eleven executive managers, six of them are directing organizations directly
involved with technology; Mobile Phones, Multimedia, Technology Platforms, Chief
Technology Officer, Enterprise Solutions, and Networks. This structure is quite unique
because in other companies all technological efforts are directly under a CIO (chief
information officer) or CTO (chief technological officer). But this spread of technological
functions, even among the top level, is reflective of the flat structure utilized.
The flat structure is actually quite common amongst companies that are in the tech
industry. In other industries, such as finance, one would expect to see more layers in
management, but in the technology sector flat is better. Recalling a chart from a previous
class, Nokia operates in an unstable and complex environment, and it utilizes the Matrix
32
Organization26, albeit a customized version of it. Below we can see Nokia’s current
corporate structure:
Figure 1. Nokia Corporate Structure
This version of the corporate structure was adopted in 2003, when Nokia decided that
it needed to change its structure due to market needs; the competition and other factors in
Nokia’s environment deemed it necessary. At that time, Olli-Pekka Kallasvuo, now the
CEO, was the CFO. Replacing him as the CFO was Rick Simonson, who became the first
non-Finnish senior level executive in the company’s history. "Mobility is one of the
world's megatrends with a great opportunity," then CEO Jorma Ollila said. "It will
change how businesses are run and it is our ongoing ambition to help consumers and
corporations in this transition. The industry and corporate structures that were established
a decade ago at the dawn of mobile communications were very different from what is
needed going ahead27.” Below is a matrix organization according to PMI.org:
26 James L. Bowdich and Anthony F. Buono, A Primer on Organizational Behavior, 6th ed. (New York: John Wiley and Sons, Inc., 2005), page 283.
27 “Nokia Plans New Corporate Structure”, http://telephonyonline.com/access/web/telecom_nokia_plans_new/
33
Figure 2. Traditional Matrix Organization Chart (PMI.org)
As an example of this matrix structure, Nokia makes much use of cross-functional
teams that has employees from various departments such as marketing, sales, and
logistics.
One of the reasons for the flat corporate structure is the fact that Nokia itself has
changed over its lifetime, spanning a century.
Figure 3. Evolution of Nokia's Business
From a manufacturer of paper in 1865, to a manufacturer of cellular phones in 2006,
Nokia had to go through a lot of structural changes. In today’s environment Nokia
definitely needs to be fast and nimble. One example is the cell phone as a portable music
device. Motorola has incorporated digital music playback in its phones, and Nokia was
34
caught off guard by this new trend. It was forced to play catch-up. It has done that so well
that a few analysts predict Nokia will displace the iPod as the leading personal digital
music player.
The current corporate structure does support Nokia’s corporate vision and mission.
By keeping itself flat, where quick decision making is possible, Nokia can respond to
customer needs quicker than the competition. This flatness and the use of teams also
enable Nokia’s R&D department to invent and develop cool technologies, cheaper, which
will enable more human beings to be connected. A wonderful example is the new Nokia
flagship product for 2007, the N95, which combines a quadband handset (with support
for 3G and HSDPA networks) with a GPS navigator and mapping application, 5-
megapixel camera, Wi-Fi connectivity, and a Web browser28.
What is the origin of the Nokia name?
The Nokia name comes from the river
Nokia (on which Fredrik Idestam founded
the wood pulp mill, Nokia Ab, in 1865). The
river took its name from a dark, furry rodent
called the nokia (in English, the musteline),
which lived on the banks of the river.29
It is a relative of the North American
skunk.
For The Curious
Corporate Culture
Organizational culture, or corporate culture, comprises the attitudes, experiences,
beliefs and values of an organization. According to Wikipedia, corporate culture is “…the
specific collection of values and norms that are shared by people and groups in an
organization and that control the way they interact with each other”. There has always
been a well defined culture at Nokia, ever since its creation in 1865. Nokia's official
corporate culture manifesto, The Nokia Way, emphasizes the speed and flexibility of
28 “Nokia N95”, http://www.cnet.com.au/mobilephones/phones/0,239025956,339271384-3,00.htm29 “About Nokia”, http://www.nokia.co.kr/BaseProject/Sites/KRKR_50193/CDA/Categories/
AboutNokia/Company/_Content/_Static_Files/abnokia03.pdf
35
decision-making in a flat, networked organization, although the corporation's size
(roughly 58,000 employees) necessarily imposes a certain amount of bureaucracy30.
Equality of opportunities and openness of communication are also stressed, along
with management leadership and employee participation. The culture is best described as
flat, equal opportunity, innovative, decisive, and enduring. The first aspect of the culture
that can be detected is the decisiveness. At Nokia, employees are expected to hit the
ground running. Individuals are expected to understand their deliverables and to know to
complete their tasks. Because of this expectation employees can be immediately placed in
the heat of the battle. "In less than a fortnight I felt like a veteran Nokia employee," said
Ravneet Singh Phokela who joined Nokia India as brand marketing and CRM manager31.
The culture is very consistent with the current objectives, strategies, policies, and
programs. That is because the culture is of such a nature that it would benefit any
industry. Hence the easy, relatively speaking, manner in which Nokia changed from first
a paper company, then rubber, then telephone and radio, then network components, and
then finally to cell phones. One underlying aspect of the culture is what is called the sisu
trait within Nokia32. Sisu means ‘guts’ mixed with endurance. This trait of Nokia’s culture
is what has enabled the company to survive for such a long time, and through so many
changes and market fluctuations.
Nokia’s culture is very diversity friendly. The culture borrows very much from the
Finnish social culture. "Nokia is a melting pot of people, based on the egalitarian society
that exists in Finland,” according to Sanjay Bhasin, Director of the India Strategy
Division. Looking at the charts below, we can see that Nokia is definitely a global
company.
30 http://www.answers.com/topic/nokia-corporation-adr31 The Essence of Great Workplaces. Retrieved January 19, 2007 from the web site
http://www.growtalent.com/gptw/no8.htm32 “CEO Ollila says Nokia's 'sisu' will see it past tough times.” USA Today, July 20, 2004.
36
Table 7. Nokia Headcount by Country, 200533
More charts depicting the level of diversity within Nokia can be seen in the appendix.
Also, in 2005 Nokia introduced two new questions related to diversity and inclusion in
their annual employee survey, with the following results:
Total
favorableNeutral
Total unfavorable
All employees of Nokia are
treated as individuals regardless
of age, race, gender, physical
capabilities, etc.
70% 16% 13%
My team has a climate in
which diverse perspectives are
valued.
67% 23% 10%
Table 8. Nokia Employee Survey Results on Diversity, 200534
Looking at the survey results we see that there is a bit of room for improvement. One
suggestion, Nokia should become a member of Diversity Best Practices. This
membership will help the company focus more on diversity and ranking in the top ten
will provide an incentive. Looking over the list of the 2004 winners, Cisco Systems, Inc.
was the clear winner for the Network/communications industry (awarded 9 points for
diversity).35
33 Nokia Corporate Responsibility Report 2005, http://www.nokia.com/link?cid=EDITORIAL_610634 Ibid35 “Diversity Best Practices Member Companies,” http://www.diversitybestpractices.com/mem.html
37
Corporate Resources
Marketing
Nokia’s key strength in marketing is its brand. Nokia’s is the sixth most valuable
brand worldwide, and the strongest brand among mobile handset manufacturers,
according to Interbrand’s 2006 survey. In fact, Interbrand claims the Nokia brand is
nearly twice as valuable as that of its next leading competitor, and Nokia’s brand equity
is growing faster than its nearest competitors.
Rank Company2006 Brand Value ($m)
YoY Change
#6 Nokia $30,131mil 14%#20 Samsung $16,169mil 8%#26 Sony $11,695mil 9%#69 Motorola $4,569mil 18%#94 LG $3,010mil 14%
Table 9. Brand Value of Mobile Handset Makers 2006 (Interbrand)36
Mobile manufacturers must believe that branding matters; each of the 5 key players
(who command 80% of the unit volume between them)37 has a global brand ranked in the
100 most valuable worldwide. That suggests that these companies have all heavily
invested in marketing focused on branding.
Nokia’s sales and marketing budget is very flat, as a percentage of revenue, over the
past three years.
RevenueSales and Marketing
Advertising and
Promotional2005 € 34,191mil € 2,961mil 8.66% € 1,481mil 4.33%2004 € 29,371mil € 2,564mil 8.73% € 1,144mil 3.89%2003 € 29,533mil € 2,657mil 9.00% € 1,414mil 4.79%
Table 10. Nokia Advertising and Promotional Expenditures vs. Revenue38
Nokia also makes known, in its annual report, the portion of its Sales and Marketing
line item which goes to Advertising and Promotional expenses. The Advertising budget
36 Interbrand and BusinessWeek, “Best Global Brands 2006: A Ranking by Brand Value”, pp. 11-1337 IDC Press Release, “Mobile Phone Shipments Continue Robust Growth in the Second Quarter,
According to IDC; Will 2006 Be a Billion Unit Year?”, July 20, 200638 Nokia Annual Report 2006, p. 6, and Note 7, p. 21
38
was roughly equal in 2003 and 2005, but notably smaller in 2004. In any case, it’s
difficult to ask for an increase in marketing funds when Nokia’s brand has essentially
lapped its competition.
Nokia’s spending on sales and marketing appears to be in line with industry averages
– it’s difficult to be certain, since other companies don’t break out their Advertising and
Marketing expenditure, or even a Sales and Marketing line item, but simply report the
required Sales, General and Administrative expense. We would expect other companies’
SG&A to be larger than Nokia’s Sales and Marketing expense, and a glance at other
annual reports bears that out.
Revenue SG&A2005 $ 36,843mil $ 3,859mil 10.47%2004 $ 31,323mil $ 3,714mil 11.86%2003 $ 23,155mil $ 3,285mil 14.19%
Table 11. Motorola SG&A vs. Revenue39
Revenue SG&A2005 $ 56,720mil $ 9,121mil 16.08%2004 $ 56,892mil $ 8,228mil 14.46%
Table 12. Samsung SG&A vs. Revenue40
Nokia segments the global mobile handset market into 12 categories of purchasers.
In mature markets, Nokia offers the N-series (targeted at “tech leaders”) and E-series
(targeted at users preferring more simple devices) sub-brands, appealing to two different
sets of market segments.
One marketing technique which Nokia has embraced is blogging. In March 2005,
Nokia distributed 1800 of its Nokia 7710 Smartphones to bloggers worldwide41, and
asked them to write about their experiences. BusinessWeek picked up on this PR
operation in its own blog that April, writing “Look how Nokia is using a blog to promote
a new phone. It's a textbook example of how corporations are bending the blog format to
39 Motorola Annual Report 2006, p. 44 40 Samsung Annual Report 2006, p. 70 41 Guillaume du Gardier, “Remember Marqui's Blogosphere program? Now Nokia is playing”, March
6, 2005. http://www.prthoughts.com/nokia_7710/index.html
39
fit their needs.”42 The column was corrected a short time later when the author of the
linked blog wrote to clarify that he wasn’t employed by Nokia, but was part of the Nokia
7710 VIP program.
In the summer of 2006, Nokia contracted to identify young, hip bloggers in Canada
with at least 400 blog hits per day and with wireless service through a particular carrier,
and gave 90 such bloggers a new camera phone.43 Finally, Nokia gets a heavy amount of
press from some well-known technology bloggers, most notably Darla Mack44, as part of
an indeterminate relationship.
Whether the medium is or is not the message in general, it certainly is with respect to
blogs in specific. By promoting its handsets in this manner, Nokia seeks to establish
itself as the youngest and hippest of the mobile phone brands.
Nokia also uses YouTube as a medium for getting its young-and-hip brand image
across. It’s posted a two-minute “commercial”45, spoofing the idea of a video form letter
from a CEO with one person’s name pasted in, and concluding with a brief Nokia logo
and message. It’s useful for the experiential marketing which Nokia is most interested in,
appealing to its customers’ feelings, but less useful at explaining exactly what the product
is or what it does.
Finally, Nokia promotes its young-and-hip brand image with events such as the
“Nokia New Year’s Eve” party in 2006. On December 31st, Nokia sponsored events in
Hong Kong, Mumbai, Berlin, Rio de Janeiro, and New York City, reaching over 2mil
people and presenting such musicians as Nelly Furtado, the Black Eyed Peas, John
Legend, Sérgio Mendes, Rihanna, Ludacris and KT Tunstall.46
In his Nokia World 2006 keynote, Phil Brown, Nokia Vice President of Sales and
Marketing for Mobile Phones – Europe, pressed the Nokia marketing theme of appealing
to people’s emotions and needs, as opposed to emphasizing how many megapixels a
42 “Case study of a marketing blog: Nokia's 7700”, Stephen Baker, BusinessWeek, April 29, 2005 http://www.businessweek.com/the_thread/blogspotting/archives/2005/04/case_study_of_a.html
43 “Nokia 'seeds' bloggers with free camera phones”, Financial Post, June 30, 2006 http://www.canada.com/topics/technology/news/gizmos/story.html?id=ffa571a8-1425-4bb6-8eb5-2c2db6b79c22&k=64977
44 darlamack.blogs.com – and seriously, search this woman’s name, or “Mobile Diva”, and you’ll find a lot of discussion around her blog.
45 http://www.youtube.com/watch?v=_3N3YuoIauk46 http://nokianewyearseve.msn.com/
40
phone’s camera can resolve. In keeping with that focus on experiential marketing, Nokia
has redoubled its emphasis on retail stores. Cliff Crosbie, Nokia Director of Retail
Marketing, gave a Nokia World 2006 session on Nokia’s Flagship Store concept. Nokia
has plans for 18 Flagship Stores worldwide, in major cities such as New York, Chicago,
Moscow, Hong Kong, Mexico City, and London. Thus far, the Average Selling Price of
phones at the Flagship Stores is trending to 165+% of the market average.
Nokia’s strong brand, effective segmentation of the huge and diverse cell phone
market, promotional focus on youthful consumers (who will purchase many cell phones
over their lives), and clever marketing techniques leave them well positioned among
mobile handset makers.
Financials
Nokia turned a €4.6 bil operating profit on €34.2 bil revenue in 2005 (operating
margin of 13.6%), up from €4.3 bil operating profit on €29.4 bil revenue in 2004
(operating margin of 14.7%). By way of comparison, their most similar competitor,
Motorola, reported $4.7bil operating profit on $36.8 bil revenue in 2005, for an operating
margin of 12.8%.
Nokia reports financial results for four operating segments:
Mobile Phones
Multimedia
Enterprise Solutions
Networks
Products of the Mobile Phones and Multimedia segments are becoming difficult to
distinguish. Both segments produce what most people would call “cell phones”. Mobile
Phones takes a bottoms-up approach, integrating what are becoming common features
(such as a camera and a music player) into cell phones, while Multimedia starts with a
converged device. It’s not clear whether this organizational structure will continue to
make sense; it’s quite likely that merging the divisions, or retasking Mobile Phones to
focus on inexpensive communication devices and Multimedia to focus on convergence
devices, will better serve Nokia as it seeks to capitalize upon growth opportunities in
emerging markets.
41
Enterprise Solutions is best described by Nokia itself:
Enterprise Solutions offers businesses and institutions a broad range of products
and solutions, including enterprise-grade mobile devices, underlying security
infrastructure, software and services. We also collaborate with a range of
companies to provide fixed IP network security, mobilize corporate e-mail and
extend corporate telephone systems to Nokia’s mobile devices.
Finally, Networks is the Nokia division responsible for (cell) network provider
infrastructure – not only does Nokia sell the mobile handset, but they also sell the base
station at the other end of the radio waves.
One of Nokia’s primary competitors in the mobile handset market is Motorola. In
fact, Motorola competes directly with all four of Nokia’s operating segments. Motorola
reports its business as Mobile Devices, Government and Enterprise Mobility Solutions,
Networks, and Connected Home Solutions. Three of Motorola’s reporting units have
direct analogs in Nokia’s business – Connected Home Solutions isn’t a market in which
Nokia competes.
(Nokia Division Names) Nokia Motorola Nokia MotorolaMobile Phones + Net Sales € 26,792 $21,455 € 22,197 $17,108 Net Sales Mobile DevicesMultimedia Operating Profit € 4,434 $2,198 € 3,961 $1,728 Operating Profit
Operating Margin 16.5% 10.2% 17.8% 10.1% Operating MarginNetworks Net Sales € 6,557 $6,332 € 6,431 $6,026 Net Sales Networks
Operating Profit € 855 $990 € 884 $718 Operating ProfitOperating Margin 13.0% 15.6% 13.7% 11.9% Operating Margin
Enterprise Net Sales € 861 $6,597 € 839 $6,228 Net Sales Government andOperating Profit -€ 258 $882 -€ 210 $842 Operating Profit Enterprise MobilityOperating Margin -30.0% 13.4% -25.0% 13.5% Operating Margin Solutions
(all figures in millions, except percent)
2005 2004(Motorola Division Names)
Table 13. Nokia and Motorola Margins by Segment, 2004 and 200547
Unfortunately, Motorola does not report expense categories by segment, so we can’t
perform common-size analysis on a segment by segment basis at the level of detail we
might like. Still, we observe that Nokia’s two main handset divisions combine to operate
at significantly higher margins than does Motorola’s handset division, and on about 40%
more revenue (depending on exchange rates). Motorola’s Government and Enterprise
division is at least six times the size of Nokia’s Enterprise Solutions division, and
operates profitably. The network divisions of Nokia and Motorola are broadly similar in
47 Based on data from Nokia and Motorola 2005 annual reports
42
their revenue and margins. This analysis suggests that Nokia’s handset division is its
biggest strength.
Three of Nokia’s divisions combined to record total operating profits of €4.5bil and
€4.9bil in 2004 and 2005, respectively. One division, Enterprise Solutions, had operating
losses of €210mil and €260 in those same periods.
REVISED 1-12/2005 BY BUSINESS GROUP, EUR million(audited)
Mobile Multimedia Enterprise Networks Common Elimina- GroupPhones Solutions Group tions
Functions
Net sales 20,811 5,981 861 6,557 - -19 34,191Gross profit 6,480 2,489 402 2,590 21 - 11,982Gross margin, % 31.1 41.6 46.7 39.5 35.0Research and developmentexpenses -1,245 -860 -329 -1,170 -221 - -3,825% of net sales 6.0 14.4 38.2 17.8 11.2Selling and marketingexpenses -1,541 -705 -221 -475 -19 - -2,961% of net sales 7.4 11.8 25.7 7.2 8.7Administrative and general expenses -68 -38 -74 -211 -218 - -609% of net sales 0.3 0.6 8.6 3.2 1.8Other income and expenses -28 -50 -36 121 45 52Amortization of goodwill - - - - - - -
Operating profit 3,598 836 -258 855 -392 - 4,639Operating margin, % 17.3 14.0 -30.0 13.0 13.6
Table 14. Nokia 2005 Earnings by Business Group48
Enterprise Solutions is clearly qualitatively different from the other business groups
in terms of its expenses and profits. Enterprise Solutions’s R&D expense is twice the
next largest R&D expense as a fraction of sales, and similarly for Sales & Marketing and
General & Administrative. Accordingly, while the other three divisions have operating
margins between 13 and 17 percent, Enterprise Solutions runs at a 30 percent operating
loss.
It’s possible for Enterprise Solutions to be running at a loss for a good reason. Some
such reasons might include:
It’s a new business, and expected to turn a profit in the future.
48 Available in Nokia’s 2005 annual report or as an Excel spreadsheet at http://www.nokia.com/A4126496
43
It’s a complementary business to one which does turn a profit; losing money in
this business enables the company to make more money in another.
It’s a strategically important business because it denies or reduces a profitable
market opportunity to a competitor.
A glance at the relevant section of Nokia’s 2004 financials suggest that, if Enterprise
Solutions is expected to turn a profit in the future, it may wish to get started already.
Enterprise Enterprise Solutions Solutions
2005 2004 Change
Net sales 861 839 +2.6%Gross profit 402 364 +10.4%Gross margin, % 46.7 43.4 +7.6%Research and developmentexpenses -329 -304 +8.2%% of net sales 38.2 36.2 +5.5%Selling and marketingexpenses -221 -199 +11.1%% of net sales 25.7 23.7 +8.4%Administrative and general expenses -74 -61 +21.3%% of net sales 8.6 7.3 +17.8%Other income and expenses -36 -4Amortization of goodwill - -6
Operating profit -258 -210Operating margin, % -30.0 -25.0
Table 15. Nokia Enterprise Solutions Financials, 2004 vs 200549
Enterprise Solutions did improve its top line by 2 percent from 2004 to 2005.
Unfortunately, spending growth in each of its expense categories grew faster than
revenue - R&D, Sales, and G&A all grew as a fraction of revenue from 2004 to 2005. If
Enterprise Solutions were a new business expected to turn a profit in the future, we’d
expect to see more than 2% year-over-year growth in sales. At the current top-line
growth rate, Enterprise Solutions won’t grow its way into the black, and with any top-line
growth rate, if expenses are growing faster than revenue, it’s impossible to grow into
profitability.
49 Available in Nokia’s 2005 annual report or as an Excel spreadsheet at http://www.nokia.com/A4126496
44
We can’t argue that Enterprise Solutions falls into the second category, either. If
Networks ran at a loss, we might be able to argue that Nokia subsidizes its Networks
business to ensure there were cell towers in the world for its Mobile Phones and
Multimedia divisions’ products to use. Selling “enterprise-grade mobile devices,
underlying security infrastructure, software and services, … fixed IP network security,”
and so forth, though, can’t be reasonably argued to be critical to the success of Nokia’s
profit-making divisions.
Finally, there’s the third category, denying a profitable market to a competitor. This
test fails because the Enterprise Solutions division’s revenue is so small; if there’s a
market to be denied, it’s either a tiny market, or Enterprise Solutions isn’t denying much
of it.
We conclude that the Enterprise Solutions division is a strategic weakness for Nokia,
and address it further in our Recommendations.
In summary, Nokia’s financials are strong. Its €3.6mil net profit on €34mil sales is an
entirely acceptable net margin, and its top- and bottom-line growth are both respectable.
Once it fixes its Enterprise Solutions division, it should have even brighter financial
prospects.
Research and Development
Nokia is a world leader in mobile communications, driving the growth and
sustainability of the broader mobility industry. Nokia connects people to each other and
the information that matters to them with easy-to-use and innovative products like mobile
phones, devices and solutions for imaging, games, media and businesses. Nokia provides
equipment, solutions and services for network operators and corporations.
Nokia's global developer program connects developers to tools, technical information,
support, and distribution channels they can use to build and market applications around
the globe. From offices in the U.S., Europe, Japan, China, and Singapore, Forum Nokia
provides technical and business development support to developers and operators to
assist them in achieving their goal of successfully launching applications and services to
consumers and enterprises.
45
Nokia design requirements: include technology combining the four attributes required
for mobile phones, PC’s & wrist-top computers to connect with sensors, human interface
devices, toys & home electronics devices. 1) Low peak, average & idle mode power
consumption 2) Low cost & size for accessories & human interface devices 3) Minimal
cost & size addition to mobile phones & PC'’ 4) Global, intuitive & secure multi-vendor
interoperability
Nokia’s investment in Research and Development has remained essentially flat over
the last three years. Nokia’s consistently solid financial performance and its leadership
position in the global handset market suggest it has positioned itself well through its
investment and development strategies.
Year R&D Investment
2005 €3,825,000,000
2004 €3,776,000,000
2003 €3,788,000,000
Table 16. Nokia Research and Development Investment, 2003-2005
By comparison, Motorola invests over $3bil (US) annually on R&D, but Motorola
claims 15% year on year growth in R&D spending for 15 years. Both companies invest
over half their R&D budgets on software development.
Technology is used by Nokia to improve internal operations and product
development. Global operations may be managed quickly through high speed
communication. By sourcing manufacturing operations, production may be managed to
match consumer demand. Assembly lines may be changed to match market conditions.
Nokia has developed parts management models to efficiently manage inventory. These
models are used both internally and externally.
Opportunities are created for new consumer products as technology shifts. Nokia has
increased market share through efficiently combining new technologies. R&D managers
are responsible for “exploring and developing” new technologies required for creating a
functional mobile information society. Nokia has R&D centers in eleven countries.
Approximately 36% of employees are involved in R&D. Short-term goals are to develop
competitive products efficiently. Long-term goals are to disrupt the present. Nokia
46
cooperatively participates in standardization and R&D projects with universities, research
institutes and other companies.
Nokia’s corporate research unit employs approximately 1,100 staff. 20% of these
people hold a PhD. The research group generates half of the patents of the company.
Sales have increased steadily since 2001 (1996 discounting 2000). Net profit has
been stable since 2001. Nokia is extending a leadership position into emerging markets.
These results indicate Nokia has positioned itself well through investment and
development strategies.
Nokia has defined an objective to unify technology and create a single device for
personal needs. Harry Santamäki in Espoo, Finland vows to take a sip of cod liver oil
from the bottle on his desk if he ever utters the word “phone”. "We are forbidden to call
them phones," said the vice president of multimedia strategy and business development.
Instead, they're "multimedia computers." The decree reveals Nokia's vision of the cell
phone future, one in which one device will manage your information, communication and
entertainment needs — a single remote control of sorts for your electronic life.50
50 Seattle Times technology reporter, Tricia Duryee: 206-464-3283 or [email protected].
47
Figure 4. Nokia Product Development Model
Operations and Logistics
In November of 2006 Nokia Corporation announced that it has signed a WCDMA
3G/HSPA network and managed services contract that enables Indosat to offer 3G and
wireless broadband services. Indosat will have Nokia operate its network so the operator
can remain focused on its core business and customer relationships while adopting 3G
technology. Nokia will provide Indosat turnkey services, including civil works, network
planning, implementation and integration of a WCDMA 3G/HSPA network. In providing
managed services, Nokia would take responsibility for building, operating and
transferring as well as optimizing the Indosat 3G network.
Nokia operates in four business segments. The Mobile Phones segment offers mobile
phones and devices based on global cellular technologies, such as global system for
mobile communications (GSM)/enhanced data for GSM evolution (EDGE), third
48
generation/wideband code division multiple access (3G/WCDMA) and code division
multiple access (CDMA)
Nokia President and CEO Olli-Pekka Kallasvuo said, “To enjoy the full benefits of
the continuing growth of the global device market that Nokia expects, we’ve made a
number of important strategic moves and organizational changes, and have put our
marketing and design efforts into a sharper focus. With these changes, and more to come,
we believe Nokia has the power to build a further improved portfolio of devices that
raises industry standards to a whole new level.” Kallasvuo also described the unique
opportunity he believes Nokia has to mobilize the Internet for the mass market. “With an
estimated 850 million Nokia device users out there, we are positioned to connect more
people to the Internet than any other company in the world. We are actively aligning our
strategy in pursuit of this major business opportunity.” Kallasvuo presented forecasts for
the industry and its financial targets for the next one to two years (2007-08).
Nokia recognizes a variety of operational vulnerabilities. The vulnerabilities are
clearly articulated and strategies have been developed to mitigate for the vulnerabilities
Foreign exchange risk arising from various currency combinations.
Structured Finance Credit Risk associated with arranging or providing term
financing in relation to infrastructure projects.
Strategic minority investments in publicly traded companies.
International creditworthiness allowing for use of international capital and loan
markets.
Failure to maintain or improve market position and respond successfully to
changes in the competitive landscape.
Failure to efficiently manage manufacturing and logistics without interruption.
Failure to ensure that products and solutions meet customers’ quality, safety,
security and other requirements.
Reliance on complex and highly centralized information technology systems and
networks.
Increasingly complex technology involving numerous new Nokia patented and
other proprietary technologies, as well as some developed or licensed to us by
certain third parties.
49
The global networks business relies on a limited number of customers and large
multi-year contracts.
Emerging market countries may be materially adversely affected by economic,
regulatory and political developments.
Profitability may be materially adversely affected by a failure to manage price
erosion or costs related to products and operations.
There is a continuing shift of handset manufacturing operations to middle and
low-income countries. Globally, the geographic focus of electronics
manufacturing has shifted over the years, passing from developed countries to
Japan in the 1960s, to Taiwan and Korea in the 80s, to Mexico in the early 90s,
and to China in the late 90s and early 21st century. Today, China is clearly the
dominant handset manufacturing country, but the drive to lower costs is leading
manufacturers to look toward India and other Asian countries such as Thailand in
search of lower costs.
Nokia delivers advanced repair and spare part logistics solutions to more than 150
operators globally. Nokia’s global spare part logistics network comprises three global
distribution centers, 39 local country hubs and more than 100 active strategic spare part
warehouses for mission-critical part shipments. The Nokia Multi-Vendor Spare Part
Management service is built on a range of activities, including:
Tool-based spare part demand planning to quantify volumes and consumption
patterns
Financing and sourcing of spare parts from several suppliers
Stocking parts in warehouses close to customers’ installed base
Inventory management
Multi-echelon spare part distribution
Mission-critical logistics (supply within 1–4 hours)
Returns management (rapid collection)
Repair, refurbishment and upgrade of parts
Repair vendor management for multi-vendor equipment
Warranty management
Life cycle/version management
50
24/7 call center operation
Technical support
Disposal solutions
Strategic placement of operations around the globe minimize man-made or natural
threats. Nokia has mitigated facility vulnerabilities by distributing work globally. They
have supplier management model to ensure a steady flow of components and assembled
products. The illustration below shows where Nokia is located.
Error! Hyperlink reference not valid.
Figure 5. Nokia Facilities Worldwide
External stakeholders include NGOs, governments, investors, shareholders,
universities, suppliers, and customers. Through dialogue with suppliers comprehensive
51
regional and worldwide surveys are conducted on an ongoing basis. Nokia evaluates
regional risks and develops plans to ensure uninterrupted operations.
Ongoing customer-specific dialogues are also carried out between account teams and
their trade customers, along with customer satisfaction surveys. With our suppliers, we
have an extensive supplier management and development process. CR topics are
generally included for debate.
Figure 6. Single-Vendor vs. Multi-Vendor Spares Model
The benefits of choosing Nokia as an outsourcing partner for multi-vendor spare part
management include:
Economies of scale through the operation of a shared user platform for Nokia
customers (warehouses, buffer stock and IT systems)
Experience in contracting and managing numerous repair vendors across various
technologies and geographies
Experience in contracting and managing several logistics service providers based
on global contracts
Application of advanced IT tools for the management of spare parts (planning,
sourcing, field supply, reverse logistics, swap, repair and disposal)
52
Willingness and financial strength to take ownership of multi-vendor inventory
Understanding of the complexity and criticality of telecommunications networks
as a highly experienced telecommunications equipment and service provider,
Nokia has built its business on a foundation of technical expertise and service
excellence. Developing long-term partnerships is key to Nokia’s success.
Nokia is the outsourcing supply to other companies like Orange Mobile. Orange
Mobile has deployed a number of outsourcing strategies, which have varied over the past
several years.
Orange Mobile Outsourcing Strategy
1999 Dual Supplier (Nokia/Siemens)
2002 Sole Supplier (Siemens)
2003 Dual Supplier (Siemens/Ericcson)
2006 -
2008
Sole Supplier (Nokia)
Table 17. Outsourcing Strategy of Orange Mobile
Table 17 suggests that Nokia has recently established an operations and logistics
advantage in the communications field.
Nokia has grown faster than the market by engaging in hypercompetition. They have
increased the capacity of factories by installing newer machinery and improving
manufacturing processes. Nokia can achieve higher volumes than before, with less labor.
New products are designed for manufacturability as well as performance.
The wireless handset market is dominated by a small number of powerful players.
This trend, which is expected to intensify in the coming years, is the result of large
vendors benefiting from their economies of scale while the smaller players are suffering
from the effects of severe price competition. Between 2004 and 2005, Nokia increased
its market share by more than one percent while Motorola grabbed an extra five percent
of the pie. Conversely, the handset vendors outside of the top five spots garnered only
23% of the market in 2005, a decrease of nearly six percent from the year-ago period.
Siemens’ decline in market share likely played a role the company’s decision to sell the
handset division to BenQ. If this trend continues, as seems probable, the smaller players
may be forced to exit the market.
53
Human Resources Management
According to Wikipedia.org, human resources within corporations and businesses
refers to the individuals within the firm, and to the portion of the firm's organization that
deals with hiring, firing, training, and other personnel issues51. Human resource
management (HRM) on the other hand is both an academic theory and a business practice
that addresses the theoretical and practical techniques of managing a workforce.
So, the human resource (HR) or HRM department within a company is charged with
handling the human aspects of the organization. So how does Nokia handle the labor
force within the company? What is the function of the HR department within Nokia?
Nokia has a well-defined and efficient human resources team, divided into three core
functional areas – Organizational HR, Business HR, and CPD. These groups work
closely with employees and management to create and carry out all people initiatives. To
understand that better we have to look at Nokia’s current HRM objectives, strategies,
policies, and programs. Since none of the team members actually work for Nokia, the
HRM objectives, strategies, policies, and programs are not known. Scouring the Internet
and the company’s website has not produced them, but we can try to identify what they
are.
To detect what the HRM vision and mission would be, we will start by reviewing the
corporate vision and mission. Then we will look at the leadership of the HR department.
After that, we will observe the structure of the company. By looking at the corporate
vision and mission,
Vision: Our Customers continue to be our first priority
Mission: In a world where everyone can be connected, we take a very human
approach to technology
we can determine what they would be for the HR department and function within
Nokia. Every department in a company should have a vision and mission. They help set
the direction that the department should go in. Therefore, each sub-department mission
and vision should support the overall corporate ones, to ensure everyone in all
departments is going in the same direction. It is the same policy that is often followed
with a balanced scorecard. Every objective supports the objective above it.
51 http://en.wikipedia.org/wiki/Human_resources
54
Next, we will look at the leadership of the HR department. Currently the HR
department at Nokia is led by Hallstein Moerk. He is responsible for all human resources
activity including employee development, management and leadership development,
compensation, benefits, staffing and global diversity. He holds a "Diplomekonom"
degree from the Norwegian School of Management. The main focus of his leadership is
to increase communication between the various departments, to ensure good
communication across the board. Under his directive Nokia’s HR department became
more involved externally, as exemplified by Nokia’s membership in the European HR
Forum52, which meets regularly to discuss HR issues and best practices.
The organization chart of the company is very flat. Nokia is known to be one of the
flattest organizations in the world. I tried to locate the actual org. chart, but that is tightly
protected behind the company firewall. Nevertheless, we were able to find the structure
chart, above. Looking at the structure, HR would fall under the Business Infrastructure
group, and it would be effective across all the product lines. As an example, the HR
director at Nokia’s Palo Alto research site works in a matrixed environment, reporting to
the global head of business HR, and working closely with site managers, throughout the
U.S., to align HR and OD strategy with business directives53.
One other aspect of the HR function that needs to be taken in account is the
globalization aspect. Nokia operates around the world. For example, in India the
company has a very robust R&D site. This global footprint means that HR has to ensure
the various cultures and laws are not trampled on. HR seems to be living up to its
responsibility quite well, as the Finnish society is quite egalitarian. Another corporate
aspect HR needs to consider is the various locations its employees actually work.
According to Infoworld54, employees considered telecommuting the best personal benefit,
in a 2000 survey.
52 “Organizations Participating in EHRF” http://www.ehrf.org/index.php53 “Nokia Research Center”, http://www.vfandco.com/resources/PDFs/SamplePositionDescription.pdf54 “Retaining Your Most Valuable Assets”,
http://www.infoworld.com/articles/ca/xml/00/07/24/000724caretain.html
55
Figure 7. Employee Benefit Preferences
Nokia does allow its employees to work remotely, either from home or other places
such as coffee shops. As we will see in the section where we discuss Nokia’s Information
Technology, HR is involved in the effort to re-organize work globally.
Having taken all of these in consideration, what should the HR department vision and
mission be? Our suggestion needs to take in consideration the following:
Flat organization
Working remotely
Globalization
Promote communication
Support effective teams
Leader in the HR industry
Our suggestion of the vision and mission, which should be clearly stated on the HR
intranet site and documentation:
56
Vision: Human Resources will function as a strategic partner to position Nokia as a
leading employer by supporting ethical and moral behavior, excellent combination, and
implementing best practices.
Mission: The mission of Human Resources is to promote a richly diverse, innovative
and creative environment that will support overall corporate goals. To accomplish this
mission Human Resources will:
Create innovative and flexible employee-centered programs and services to attract
and retain the most talented workforce
Emphasize a diverse, positive, and supportive work environment
Focus on ‘employee as customer’ consistently striving to exceed expectations by
supporting and maintaining:
Respect for the individual
Diversity as a competitive strategy
Appreciation and recognition for good work
Management accessibility and communication
Workforce development, globally
The HR vision and mission above support and are consistent with the corporate vision
and mission.
Nokia has made a strategic decision with implementing The Nokia Way. HR is
directly responsible with ensuring new employees understand this culture, and that they
can function and thrive within it. We scoured the internet to see if we can detect any
lawsuits, complaints, or other any negative feedback on the company, and we could not
find anything. Some of the best companies, such as Intel, can not boast as such.
The trends that emerge from a happy workforce is a drive for more social
responsibility. Good employees make for good advertising. So Nokia Human Resources
management introduced a new global time-off guideline, recommending that Nokia
employees dedicate one to two working days per year to the company’s employee
volunteer program. In 2006 Nokia employees around the world volunteered for nearly
18,000 hours55.55 “Corporate Responsibility and Nokia’s Supply Chain”,
http://www.nokia.com/NOKIA_COM_1/Corporate_Responsibility/Supply_chain/Supplier_requirements/Nokia_Supplier_06_www.pdf
57
The HR department also closely tracks every employee's progress. Every year in
September, Nokia employees across mobile phones, networks and R&D divisions set up
teams comprising 6-8 employees. Each of these cross-functional teams has employees
from marketing, sales and logistics, who would already have submitted a performance
rating of themselves, the company, the division, and so on, on various parameters. The
teams are told to formulate an action plan and improve on the parameters with the lowest
scores. The HR department coordinates this exercise and reviews progress every quarter2.
The way that Nokia HR handles various aspects of globalization is by infusing a lot
of the Finnish social values into the company. The company places a huge emphasis on
equality, where all employees are treated equally. This egalitarianism removes a lot of
barriers and stress points, especially when dealing with a class structured society such as
England and India. At Nokia everyone flies economy class and stays at Taj Hotels when
in India. All employees, “Nokians”, have a Communicator as their mobile phone. And
everyone from the head to the guy who joined yesterday - all 52,000 Nokia employees
worldwide - have the same profit sharing arrangement. This profit-sharing could range
from 1-5% of its earnings globally.
As we can see, Nokia’s HR department is an active partner in helping set the strategy
for the whole corporation. We believe that the HR department does provide the company
with a competitive advantage through the various internal and external programs and
relationships that it undertakes. While HR departments at other companies engage in
activities that are similar, we believe the Finnish social value system allows Nokia’s HR
to do it better.
Information Systems
The Information Systems (IS) department of most companies provides various
services around technology and process creation and implementation. Often, the IS
department is also referred to as the IT (information technology) department. Under the
IS department often we can find various oversight departments, such as quality and
safety. The IS department main function is to distribute equipment, such as computers
and servers, set up and maintain networks, and set up and maintain data management
systems.
58
Considering the fact that none of us work for Nokia, and none of us are skilled
enough to penetrate their corporate firewall (we wouldn’t even if we could for various
legal reasons), we have to resolve ourselves to using any company data available on the
internet. So one of the key aspects when inspecting a department is to assess the direction
and leadership, and how it supports the overall organization. We can not detect what
Nokia’s IS vision and mission is, and neither can we detect the strategies that it uses, but
we can draw inferences based on other documentation available. We will also make some
general assumptions that ought to be true for any company of Nokia’s size and operating
in the same industry.
At Nokia the IS department, while it performs the said functions, it seems to do a bit
more. A news release on Nokia’s website states that its IT department has partnered with
its R&D department to develop, test, and conduct a functionality run on a new
technology. While many companies in the technology sector use their IT departments as
guinea pigs, Nokia seems to make a concerted effort to ensure the IT department is a
partner in the development process as well.
The IT department also has to take in consideration remote connectivity and wireless.
Nokia is at the cutting edge of the teleworking technology and its application – it is both
part of their business and essential to the way they operate. Nokia develops the wireless
network devices as well as use them. The IT department has to have a robust set of
procedures and standards in order to ensure minimal downtime. It has to allow remote
accessibility to its network from external locations such as the home. To do that the IT
department has implemented what is known as the Nokia IP Security. It is a piece of
hardware that is an important part of the company firewall56.
One of the assumptions that we can make is that Nokia has a large and complex
network infrastructure. Nokia has ten factories worldwide, and it has to connect all of
them through a company network. This network inevitably has to use external providers
because it will not be cost efficient for the company to physically set up its own network.
Therefore we know that it will use security software solutions such as VPNs (virtual
private networks). Also, the company has thirty-one main suppliers globally. We can
56 “Arizona State University Simplifies Security with Nokia Solution.“ http://whitepapers.techrepublic.com.com/casestudy.aspx?docid=69236
59
assume that it has set up an extranet to ensure efficient and cost effective collaboration
with these suppliers.
Nokia partners with various firms to test third-party products on its hardware. It has
set up a program call the Nokia OK Program. This program is a certification effort for
other manufactures to certify that their products work on the Nokia’s phones and
hardware. One such example is the collaboration with National Software Testing Labs
(NSTL) to test the J2ME applications57.
There are many other programs within Nokia, such as the Loopset product, which
helps disabled IT personnel conduct their jobs more productively. All of these programs
and products would fall under the jurisdiction of the IT department. Therefore, it can be
safely assumed that their IT department is not comprised of a few individuals, in a back
room, working on archaic equipment; but more of an evolved and advanced Information
Systems, especially since Nokia manufactures most of the hardware.
All Nokians, as Nokia employees call themselves, have a Communicator as their
mobile phone. The Communicator is a series of Nokia smart-phones, all of which appear
as normal phones on the outside yet have a keyboard and a large LCD screen inside. This
dual functionality serves two purposes, constant availability, and data access. The system
in place to allow the constant connectivity and depth of data has to be quite advanced.
We can tell just by this detail that the IS department provides a useful database which
provides Nokians immediate data access for efficient decision making. This access
provides Nokia with a decisive competitive advantage in an industry where timely data
and decision making is strategically important.
57 “NSTL named Authorized Testing Lab for Nokia OK Program”, http://www.nstl.com/about_nstl/press_docs/nokiaok3.25.02.pdf
60
Figure 8. Nokia Communicator 9500
Based on theses findings, what do we expect Nokia’s IS department’s vision and
mission to look like? Well, let’s review some of our findings:
Extranet – with 32 suppliers we can assume Nokia has an extranet
Intranet – undoubtedly they make use of an intranet
Website – we have spend countless hours perusing their internet website
Firewall – a company of this size will make use of a very extensive firewall setup
VPN – security measures for remote connectivity, for telecommuting
Databases – in order to store all of the data from testing, logons, etc
Taking all of these factors into consideration, we think the IS department’s vision and
mission should be:
Vision: Enable leadership and competitive advantage through sound implementation
of technology
Mission: Nokia IS will create and sustain a world-class information technology and
telecommunications environment that fosters innovation and collaboration, with minimal
downtime for all, regardless of time or place
The IS vision and mission, above, should be placed on the intranet website, and any
communications from the IT department. We believe that, just like the HR vision and
mission, the IS vision and mission supports the overall corporate vision and mission.
After all the research, we’ve concluded that Nokia’s IS department is on par with, if
not ahead of, other corporations in the technology industry. This result is to be expected
when the Executive Staff is so laden with tech-savvy leaders, such as Dr. Tero Ojanperä,
61
which is the Chief Technology Officer for Nokia. As the CTO of the company, Dr.
Ojanpera is expected to help set the strategy for the whole corporation. This decision-
making role is reflected in other large corporations where IS/IT is represented in the top
echelon of the company.
SummaryInternal Factors Weight Rating
Weighted Score Comments
Strengths Innovative marketing 0.07 5 0.35Blog marketing, experiential marketing are brand strengths
Brand strength 0.15 5 0.75#6 most valuable brand worldwide - #1 among mobile handset makers
Global positioning 0.15 4 0.6 Significant revenue from X countries
Flat / decentralized / matrixed org 0.10 3 0.3Appropriate org structure for quick decision-making - useful in tech (everyone else does it, too)
Finnish sociopolitical environment 0.05 5 0.25Creates its own weather - drives its needs into Finnish government and society
Outsourced manufacturing 0.15 4 0.6Only does the most value-added tasks; can quickly change manufacturing plans
Strong distribution network 0.08 4 0.32 Hundreds of thousands of retail outlets
Weaknesses Late to convergence devices 0.10 1 0.1Competition arrived first; first attempt at a convergence device (N-GAGE) was not well received
Vision/mission unclear 0.05 1 0.05Doesn't appear mission/vision were updated since de-conglomeration
Social responsibility 0.05 1 0.05 SOMO report inconsistent with internal positioningEnterprise group financials 0.05 1 0.05 Not turning a profit, doesn't appear close to it, either.
Totals 1.00 3.42
Table 18. IFAS Table for Nokia
Analysis of Strategic Factors
Weight RatingWeighted Score Comments
Strengths Brand strength 0.13 5 0.65#6 most valuable brand worldwide - #1 among mobile handset makers
Global positioning 0.13 4 0.52 Significant revenue from X countries
Outsourced manufacturing 0.13 4 0.52Only does the most value-added tasks; can quickly change manufacturing plans
Late to convergence devices 0.08 1 0.08
Competition arrived first; first attempt at a convergence device (N-GAGE) was not well received
Weaknesses Social responsibility 0.08 1 0.08SOMO report inconsistent with internal positioning
Opportunties Increase market share 0.08 4 0.32Develop emerging markets 0.13 4 0.52 China, India, PhillippinesNew Technology 0.08 3 0.24 Visa Partnership
Threats ForEx risk 0.08 2 0.16 Volatile economiesTotals Product Substitutes 0.08 2 0.16 Skype
1.00 3.25
Table 19. SFAS Matrix for Nokia
The SFAS table for Nokia suggests they respond slightly better than the average firm
to the strategic factors which define their environment. Our recommendations are
focused on leveraging their brand strength, addressing their late arrival in convergence
62
devices, improving their reputation for social responsibility, and investigating new
technology.
Review of Mission and Objectives
“In a world where everyone can be connected, we take a very human approach to
technology”
The Nokia mission statement is consistent with some key strategic factors; global
positioning, increasing market-share, and developing emerging markets. Those strategies
are directly linked to Nokia’s mission to connect everyone around the world. The
mission is broad enough to be in-line with a wide range of strategies such as social
responsibility and the creation of convergence devices. Ironically Nokia is weak in both
of those strategies. The mission does not account for Nokia’s problems such as hyper-
competition and long-term profitability. That proves that a company needs proper
objectives that will lead them through their mission. Otherwise the mission becomes
only a phrase thrown around by management instead of a driving belief.
The current Nokia objectives (underlined) and their related strategies (from SWOT
analysis):
#1 in Customer and Consumer Loyalty – brand strength, global positioning,
increase market-share, develop emerging markets, social responsibility (problem).
#1 in Product Leadership – late to convergence devices (weakness), product
substitutes (weakness).
#1 in Operational Excellence – outsourced manufacturing, distribution channel.
As you can see, Nokia’s objectives have led them to success in many key strategies.
For those strategies that Nokia is weak, such as creating convergence devices, it is not the
fault of the objective. The objective is clear, #1 in product leadership. The problem is
that Nokia was late to create smart phones. Therefore we recommend making slight
changes to the mission and objectives in hopes that they will help strengthen the
weaknesses.
The current Nokia mission statement is more of a statement than a mission. Although
the statement provides a unifying theme, it does not clearly state the purpose of the
company. By sifting through the Nokia website and based on their tag line, “Connecting
63
People,” we have determined that a more appropriate mission statement for Nokia would
be, “To connect people through the use of technology”
This simplified and more focused mission statement will promote a sense of shared
expectation in employees and better communicate what the company is in business to do.
Although it has been stated by Hunger and Wheelen that an objective should state
“what is to be accomplished by when…”58 we believe that Nokia’s corporate objectives
don’t need to specify a time frame because they continuously want to be #1. But Nokia
should evaluate themselves against their objectives annually. To properly evaluate itself,
the Nokia Board of Directors and top management will need to create objectives that are
quantifiable. The following recommended objectives are more quantifiable than the
current Nokia corporate objectives:
#1 in the industry in Customer Satisfaction and Customer Retention.
#1 in the world in Product Innovation
#1 in the industry in Operational Efficiency and Quality.
The slight changes to the Nokia mission and objectives will focus the company more
on key strategies that they are currently weak in while maintaining a focus on the key
strategies that Nokia is strong in. Having measurable objectives will give the employees
a clear indication of where their company stands against the competition. Not only will
these objectives further galvanize the company, but also they allow managers to target
incremental improvements.
The implementation of the improved mission and objectives can be done immediately
by existing Nokia personnel. They would need to update their website and all other items
that contain the mission and objectives. Emails, memos, and streaming video will need
to be sent to all Nokia employees and stakeholders explaining the updated mission and
objectives. Although implementation can be done with no capital investment, the
overhead cost to send the communications to 67,700 Nokia employees and the time it
will take them to review the material will cost approximately $1mil US (computed as
67,700 employees59 x 0.5 hrs estimated time to review communications x $12/hr average
Nokia salary60 x 2 [general multiplier to find cost to employ as a function of salary])
58 Hunger, David J. and Tomas L. Wheelen. Essentials of Strategic Management. 4th Ed. Prentice Hall, New Jersey. 200759 Wikipedia’s Nokia article. http://en.wikipedia.org/wiki/Nokia60 2005 Nokia Annual Report, pg. 40 – Personnel Expenses.
64
The success of updating the mission and objectives is difficult to quantify, but
Nokia’s Board of Directors and top management should review the appropriateness of the
mission and objectives in five years (2011). This timeline will give sufficient time to
measure the outcome of how the large company responded to the updated mission and
objectives.
Recommendations, Implementation, and Evaluation
Recommendation 1: Walk The Walk on Social Practices
A recent article published by Reuters reported “As Nokia goes, so goes Finland.”
This report references the strong influence Nokia holds on the country. It is obvious that
a major portion of this influence is based on economics. Nokia is one of the largest
corporations in the country. This influence has brought change to the social-democratic
system. For example, the company lobbied the government to reduce corporate taxes.
This change was necessary to make the country more competitive in the global
environment.
This same influence must be used as Nokia expands into emerging markets. Nokia
stresses the importance of its corporate responsibility. Yet, in June of 2006, Nokia’s
CEO Olli-Pekka Kallasvuo stated it was in the process of reviewing their corporate
policies especially in the environmental and ethical sections so that they reflect the
growing public concern on issues such as substance and waste management, as well as
human rights. In December of 2006, The Centre for Research on Multinational
Corporations (SOMO) submitted their findings from a study of mobile phone
manufacturers. In that report, SOMO reported a series of serious environmental and
human rights issues. One of the most serious accused Nokia of using suppliers who
exposed employees to cancer causing chemicals. Nokia’s response was a letter rebutting
several accusations, while promising to investigate other suppliers. The response was not
a worthy response based on their Corporate Responsibility policies.
The company has created elaborate Social Responsibility statements. They recently
revamped their Standards of Conduct for employees and communicated the information
to 97% of employees. The list of commitments is long. They have supported community
65
events, made financial contributions towards saving the environment. Unfortunately,
their principles have not always been backed up by their actions. This issue represents a
serious threat to the company’s credibility and reputation. If not addressed, the negative
press will become costly and a distraction to other key strategies. It is time for Nokia to
live up to its values and exert its influence at the global level.
We recommend that Nokia form a solid action plan to address their commitment to
corporate responsibility. This action plan must have specific elements to address the
accusations brought out in the SOMO report. Nokia should go onsite to all suppliers
including third party parts suppliers. If they find truth to these accusations then they
should take steps to switch suppliers and discontinue relationships with Corporate
Responsibility policies until they have been corrected. In addition, Nokia should conduct
unannounced visits to supplier factories a minimum of three times per year. The
organization should establish an independent supplier oversight department. This
department should report directly to a senior executive leader. A cost center should be
established and comprising of twenty staff members with an annual budget of five
million dollars. This budget covers the cost for salaries, travel, and other operating
expenses. The twenty employees should be dispersed amongst its 15 manufacturing
facilities and other suppliers. Finally, besides a comprehensive action plan the company
should establish timeframes for implementation and a transparent communication plan
that describes their progress. The total implementation period should not exceed six
months and the initial manufacturing facilities overview shall be completed within one
year. As a result, we believe Nokia will gain back its tarnished credibility. The measure
of their success should come in a favorable response from SOMO. While this
improvement may be difficult, it is the best way to neutralize SOMO’s clout.
Recommendation 2: Invest in Battery Alternatives Research
The most frustrating experience for most cell phone users is repeated thousands of
times each day. The message to their caller is always the same. It usually starts with,
“Sorry, I may lose you. My battery is almost dead.” This experience is frustrating and
inconvenient. Cell phone users want a cell phone battery that has a charge lasting a
month or even longer.
66
There are several companies including H2Volt, Nitto Denko, and Mechanical
Technology (MDTL)61 that are developing new batteries using fuel cell technology.
Some experts believe we are only two years away from having a cell phone prototype
that is of equal size to lithium-ion batteries.62 Cell phone manufacturers have the
opportunity to support the development of these products.
Nokia could greatly benefit from alternative cell phone battery technology.
Considering the fact that some of its emerging markets have limited infrastructure and in
some cases third-world limitations, Nokia needs a cell phone battery that doesn’t require
regular access to a wall outlet. Adequate electricity and accessible power is a barrier for
many developing third-world countries.
Since there are several companies who are advanced in their research and
development it doesn’t make sense for Nokia to start its own R&D initiative. Instead, we
recommend that they partner or purchase a controlling interest in one of the major
companies who have promising technology. For example Mechanical Technology, an
Albany, New York, based company has a battery that has been tested to last 90 hours of
talk time. They currently have several high-powered partners including Duracell, the
U.S. Air Force, and the U.S. Army. MDTL will need another cash infusion by 2008 in
order to sustain its research. Their current stock price is a bargain at under $2.00 per
share. The word is that they will be looking for another partner to provide capital. It
makes sense for Nokia to step into the picture and develop this partnership and possibly
take on a controlling interest in the company.
Efforts to evaluate this partnership should begin immediately. Considering the
existing technologies under development Nokia needs to move quickly. To gain
controlling interest of this company they should expect to invest approximately $30
million.
61 Yahoo Finance Website, January 25, 2007,http://biz.yahoo.com/seekingalpha/070119/24586_id.html?.v=162 PC World Website, January 25, 2007,http://www.pcworld.com/printable/article/id,127380/printable.html
67
Recommendation 3: Make Enterprise Services Profitable, Or Sell It
As addressed in the Finance section of this report, Enterprise Services is the only
division which runs at an operating loss. This situation is unsustainable.
Enterprise Services should be given a mandate to become profitable in 36 months.
By 12 months, ES should cut its operating loss by 40%, and by 24 months, 80%.
Whether this goal is accomplished by growing revenue, cutting spending, or both, is a
tactical question best left to group management, but the goal is aggressive, attainable, and
quantifiable.
If ES cannot become profitable in 36 months, Nokia should investigate options to sell
that business. As described previously, there are reasons to run a business at a loss in the
medium term, but those reasons don’t apply to Enterprise Services. Removing that
business from Nokia’s portfolio would improve the company’s net margin by a full
percentage point.
Recommendation 4: Improve Support for Third-Party Application Developers
By sponsoring events such as the Nokia World conference, Nokia already
demonstrates a certain level of support for third parties who wish to develop applications
for its handsets. We recommend further extending that support for the applications
development community.
An open-source model may not be appropriate for handsets; even though there’s no
evidence of open-source-based computers being less secure than their closed-source
counterparts, we’d expect handset makers such as Nokia to have an instinctive fear of
opening their platforms too much, out of an overabundance of caution. The first time
people’s cellphones begin to crash mid-call, the maker of those phones is going to have a
truly difficult time remaining a viable player in the market.
At the same time, as multimedia players, PDAs, and cellphones all converge into a
single platform, third-party application support becomes crucial. The platform which can
do the most things, do them well, and do them simply, is likely to be the eventual winner.
To compete in that world, Nokia must either spend truly astronomical sums of money on
68
in-house R&D, or partner with third-party application developers to make their platform
the platform of choice for a variety of tasks – of which some haven’t even been
conceived yet.
Support for this recommendation requires a department of about 30 people, mostly
engineers skilled in technical marketing, who both understand the workings of the Nokia
platforms and can represent the company in enabling third parties to create applications
to run on those platforms.
Recommendation 5: Leverage Brand Strength Into In-Car Communications
Nokia should explore opportunities to team with automobile manufacturers to
develop new communications devices. Nokia’s knowledge of communication technology
may be leveraged into automobiles. Various wired or wireless methods may be
employed to connect personal communication devices with vehicles. Volvo and Saab
will be ideal candidates for pilot projects. Personal communication equipment has the
potential to serve for security, location, monitoring, and many other user controlled
functions. Automobiles are increasingly employing electronic controls. Drivers may
personalize the function of their vehicles through the use of a single unit. An individual
could use a single control in a variety of vehicles. The concept may be incorporated into
fleet operations, law enforcement such as DUI, or parent/child oversight. Data collection
opportunities also exist. Higher levels of automobile security may be achieved through
new communications devices. This concept will bring new benefits to both Nokia and
the automobile industry. The possibilities for a single in-car compatible communication
device are virtually endless.
Development of such a product will require six months to one year for feasibility
level studies, including prototyping to establish a rough-working model prior to a year to
facilitate production. The development period will take about a year and a half.
Extending Bluetooth technology to the new equipment will require less time than
developing completely new technology. This approach is in line with Nokia’s
philosophy of leveraging existing technology. The development period will be similar to
that of new car model development.
69
The design will require a small project team of 10 to 12 employees – engineers,
salespeople, and marketing representatives.
Volvo is going after the ultra luxury mega-horsepower SUV with the XC60 model.
They want to keep the title of North America’s best-selling European SUV. Volvo sells
about one million XC90 SUVs annually. If ten percent of these vehicles were sold with
our new in-car technology, the delivered cost will be $40 - $50. This new toy may be
sold for $200. The new product will move into mainstream autos as the cost of
production drops.
ConclusionThroughout its history, Nokia has reinvented itself many times. In its current form,
Nokia competes in a turbulent market, but one that richly rewards effective participants.
By focusing on its reputation, by supporting research into The Next Big Thing, whether
that be long-lasting batteries or more things that a convergence device can do, by fixing
its weak divisions, and by leveraging its marketing strengths, Nokia can further advance
in its mission and ensure itself a bright future.
70
Appendix – Risk FactorsMarch 2, 2006
Set forth below is a description of factors that may affect our business, results of
operations and share price from time to time.
Competition in our industry is intense. Our failure to maintain or improve
our market position and respond successfully to changes in the
competitive landscape may have a material adverse impact on our
business and results of operations.
Our sales and results of operations could be materially adversely affected
if we fail to efficiently manage our manufacturing and logistics without
interruption, or fail to ensure that our products and solutions meet our
and our customers’ quality, safety, security and other requirements and
are delivered on time.
We depend on a limited number of suppliers for the timely delivery of
components and for their compliance with our supplier requirements, such
as our customers’ product quality, safety, security and other standards.
Their failure to do so could materially adversely affect our ability to
deliver our products and solutions successfully and on time.
We are developing a number of our new products and solutions together
with other companies. If any of these companies were to fail to perform,
we may not be able to bring our products and solutions to market
successfully or in a timely way and this could have a material adverse
impact on our sales and profitability.
Our operations rely on complex and highly centralized information
technology systems and networks. If any system or network disruption
occurs, this reliance could have a material adverse impact on our
operations, sales and operating results.
Our products and solutions include increasingly complex technology
involving numerous new Nokia patented and other proprietary
technologies, as well as some developed or licensed to us by certain third
71
parties. As a consequence, evaluating the rights related to the
technologies we use or intend to use is more and more challenging, and
we expect increasingly to face claims that we have infringed third parties’
intellectual property rights. The use of increasingly complex technology
may also result in increased licensing costs for us, restrictions on our
ability to use certain technologies in our products and solution offerings,
and/or costly and time-consuming litigation. Third parties may also
commence actions seeking to establish the invalidity of intellectual
property rights on which we depend.
The global networks business relies on a limited number of customers and
large multi-year contracts. Unfavorable developments under such a
contract or in relation to a major customer may adversely and materially
affect our sales, our results of operations and cash flow.
Our sales derived from, and assets located in, emerging market countries
may be materially adversely affected by economic, regulatory and
political developments in those countries or by other countries imposing
regulations against imports to such countries. As sales from these
countries represent a significant portion of our total sales, economic or
political turmoil in these countries could adversely affect our sales and
results of operations. Our investments in emerging market countries may
also be subject to other risks and uncertainties.
Our sales, costs and results are affected by exchange rate fluctuations,
particularly between the euro, which is our reporting currency, and the
US dollar, the Chinese yuan, the UK pound sterling and the Japanese yen,
as well as certain other currencies.
Our sales and profitability depend on the continued growth of the mobile
communications industry as well as the growth and profitability of the new
market segments within that industry which we target. If the mobile
communications industry does not grow as we expect, or if the new market
segments which we target grow less or are less profitable than expected,
72
or if new faster growing market segments emerge in which we have not
invested, our sales and profitability may be materially adversely affected.
We need to understand the different markets in which we operate, and
meet the needs of our customers, which include mobile network operators,
distributors, independent retailers, corporate customers and end-users.
We need to have a competitive product portfolio and to work together with
our operator customers to address their needs. Our failure to identify key
market trends and to respond timely and successfully to the needs of our
customers may have a material adverse impact on our market share,
business and results of operations. We must develop or otherwise acquire
complex, evolving technologies to use in our business. If we fail to develop
or otherwise acquire these complex technologies as required by the
market, with full rights needed to use in our business, or to successfully
commercialize such technologies as new advanced products and solutions
that meet customer demand, or fail to do so on a timely basis, this may
have a material adverse effect on our business, our ability to meet our
targets and our results of operations.
Our results of operations, particularly our profitability, may be materially
adversely affected if we do not successfully manage price erosion and are
not able to manage costs related to our products and operations.
Customer financing to network operators can be a competitive
requirement and could adversely and materially affect our sales, results of
operations, balance sheet and cash flow.
Allegations of health risks from the electromagnetic fields generated by
base stations and mobile devices, and the lawsuits and publicity relating
to them, regardless of merit, could negatively affect our operations by
leading consumers to reduce their use of mobile devices or by causing us
to allocate monetary and personnel resources to these issues.
An unfavorable outcome of litigation could materially impact our
business, financial condition or results of operations.
73
If we are unable to recruit, retain and develop appropriately skilled
employees, our ability to implement our strategies may be hampered and,
consequently, our results of operations may be materially harmed.
Changes in various types of regulation in countries around the world
could have a material adverse effect on our business.
Our share price may be volatile in response to conditions in the global
securities markets generally and in the communications and technology
sectors in particular.
We file an annual report on Form 20-F with the US Securities and Exchange
Commission, which report also includes a description of risk factors that may
affect us. Nokia filed its Form 20-F annual report for the year ended December
31, 2005 on March 2, 2006. For further information please refer to our Form 20-
F annual report.
Foreign exchange risk
Nokia operates globally and is thus exposed to foreign exchange risk arising from
various currency combinations. Foreign currency denominated assets and
liabilities together with expected cash flows from highly probable purchases and
sales give rise to foreign exchange exposures. These transaction exposures are
managed against various local currencies because of Nokia’s substantial
production and sales outside the Eurozone.
Structured Finance Credit Risk
Network operators in some markets sometimes require their suppliers to arrange
or provide term financing in relation to infrastructure projects. Nokia has
maintained a financing policy aimed at close cooperation with banks, financial
institutions and Export Credit Agencies to support selected customers in their
financing of infrastructure investments. Nokia actively mitigates, market
conditions permitting, this exposure by arrangements with these institutions and
investors. Credit risks related to customer financing are systematically analyzed,
monitored and managed by Nokia’s Customer Finance organization, reporting to
74
the Chief Financial Officer. Credit risks are approved and monitored by Nokia’s
Credit Committee along principles defined in the Company’s credit policy and
according to the credit approval process. The Credit Committee consists of the
CFO, Group Controller, Head of Group Treasury and Head of Nokia Customer
Finance.
At the end of December 31, 2005, our long-term loans to customers and other
third parties totaled €63 million (no outstanding loans in 2004), while there was
nil financial guarantees given on behalf of third parties (€3 million in 2004). In
addition, we had financing commitments totaling €13 million, which does not,
however, increase total outstanding and committed credit risk from €63 million,
as it is available only provided that outstanding loan €56 million is repaid. Total
structured financing (outstanding and committed) stood at €63 million (€59
million in 2004).
Equity price risk
Nokia has certain strategic minority investments in publicly traded companies.
These investments are classified as available-for-sale. The fair value of the equity
investments at December 31, 2005 was €8 million (€7 million in 2004). There
are currently no outstanding derivative financial instruments designated as
hedges of these equity investments. The VaR figures for equity investments have
been calculated using the same principles as for interest rate risk.
Liquidity risk
Nokia guarantees a sufficient liquidity at all times by efficient cash management
and by investing in liquid interest bearing securities. Due to the dynamic nature
of the underlying business Treasury also aims at maintaining flexibility in funding
by keeping committed and uncommitted credit lines available. At the end of
December 31, 2005 the committed facility totaled USD 2.0 billion. The committed
credit facility is intended to be used for U.S. and Euro Commercial Paper
Programs back up purposes.
The commitment fee on the facility is 0.045 % per annum.
75
The most significant existing funding programs include:
Revolving Credit Facility of USD 2 000 million, maturing in 2012
Local commercial paper program in Finland, totaling EUR 750 million
Euro Commercial Paper (ECP) program, totaling USD 500 million
US Commercial Paper (USCP) program, totaling USD 500 million
None of the above programs have been used to a significant degree in 2005.
Nokia’s international creditworthiness facilitates the efficient use of international
capital and loan markets. The ratings of Nokia from credit rating agencies have
not changed during the year.
76
Appendix – Medium-Term Financial Goals of Nokia Corporation
Nokia operating margin target of 15% during the next one to two years.
This target is revised from the one to two year 17% operating margin
target Nokia set in December 2005, primarily due to Nokia’s increased
exposure to the infrastructure market following the expected start of
operations of Nokia Siemens Networks.
Device (Mobile Phones and Multimedia combined) operating margin
target of 17% during the next one to two years. This target is revised from
the one to two year 17%-18% device operating margin target Nokia set in
December 2005.
Nokia Siemens Networks operating margin target of 10% plus during the
next one to two years. Nokia Siemens Networks maintains its target to
achieve a double digit operating margin by year end 2007, before
restructuring charges.
Nokia targets an improvement in the ratio of Nokia gross margin to R&D
expenses and an improvement in the ratio of Nokia gross margin to sales
and marketing expenses in 2007, compared to 2006.
Nokia expects to meet its previously stated target to reduce overall R&D
expenditure to 9%-10% of net sales by the end of 2006.
Share gains in devices in 2007.
77
Appendix – Nokia Employee Diversity and Global Reach
78
79
Appendix - Election, Composition and Meetings of the Board of Directors
Pursuant to the articles of association, Nokia Corporation has a Board of
Directors composed of a minimum of seven and a maximum of ten members. The
members of the Board are elected for a term of one year at each Annual General
Meeting, which convenes each March, April or May. Since the Annual General
Meeting held on March 30, 2006 until May 29, 2006, the Board consisted of ten
members. Since May 29, 2006 the Board has consisted of nine members. The
members of the Board are all non-executive and independent as defined in the
Finnish rules and regulations with the exception of the Chairman Jorma Ollila,
who was Nokia's Chief Executive Officer until May 31, 2006. In January 2006,
the Board determined that eight members of the Board are independent, as
defined in the New York Stock Exchange's corporate governance listing
standards, as amended in November 2004. In addition to the Chairman, Bengt
Holmström was determined to be non-independent due to a family relationship
with an executive officer of a Nokia supplier of whose consolidated gross
revenues Nokia accounts for an amount that exceeds the limit provided in the
NYSE listing standards, but that is less than 10%. The Board convened thirteen
times during 2005, five of the meetings were held by using technical equipment
and the average ratio of attendance at the meetings was 98%. The non-executive
directors meet without executive directors twice a year, or more often as they
deem appropriate. Such sessions are presided over by the Vice Chairman of the
Board or, in his absence, the most senior non-executive member of the Board. In
addition, the independent directors meet separately at least once annually. The
Board and each committee also has the power to hire independent legal, financial
or other advisors as it deems necessary.
The Board elects a Chairman and a Vice Chairman from among its members for
one term at a time. On March 30, 2006 the Board resolved that Jorma Ollila
should continue to act as Chairman and that Paul J. Collins should continue to
act as Vice Chairman. As of June 1, 2006 Jorma Ollila will continue as a Non-
80
Executive Chairman, following the termination of his employment with Nokia. The
Board also appoints the members and the chairmen for its committees from
among its non-executive, independent members for one term at a time.
The Board conducts annual performance self-evaluations, which also include
evaluations of the committees' work, the results of which are discussed by the
Board. The Corporate Governance Guidelines concerning the directors'
responsibilities, the composition and selection of the Board.
81
Appendix - Group Executive Board Compensation
Number of Stock Optionsa
Total realisable value of Stock Options EUR b, c
Realized gains in 2005 on Stock Options exercisedd
Stock Option
category
Exercise price per
share EUR
Exercisable
Un-exercisable
Exercisable3 Un-exercisable
Number of options
Gains
Pekka Ala
Pietilä
2001
A/B36.75 0 0 0 0 250 000 5
(Information
as per January
31, 2006)
2001
C 4Q/0126.67 7 818 0 0 0 117 182 6 356
2002
A/B17.89 15 625 0 0 0 203 125
145
448
2003
2Q14.95 0 0 0 0 0 0
2004
2Q11.79 30 000 0 97 800 0 0 0
2005
2Q12.79 0 0 0 0 0 0
Yrjö Neuvo2001
A/B36.75 70 000 0 0 0 0 0
(Information
as per December
31, 2005)
2001
C 4Q/0126.67 32 807 2 193 0 0 0 0
2002
A/B17.89 56 875
13
1250 0 0 0
2003
2Q14.95 22 500
17
50011 250 8 750 0 0
2004
2Q11.79 6 250
13
75022 875
50
3250 0
a Number equals the number of underlying shares represented by the option entitlement.b For Dr. Neuvo the realisable value of the stock options is based on the difference between the exercise price of the options and the closing
market price of Nokia shares on the Helsinki Stock Exchange as of December 30, 2005, which was EUR 15.45.c For Mr. Ala-Pietilä the realisable value of the stock options is based on the difference between the exercise price of the options and the
closing market price of Nokia shares on the Helsinki Stock Exchange as of January 31, 2006, which was EUR 15.05.d Realized gains in 2005 represent the total gross value received in 2005 in respect of options sold over the Helsinki Stock Exchange
(transferable stock options).
Performance Shares and Restricted Shares
82
The following table provides certain information relating to performance shares and restricted shares held by members of the Group
Executive Board as of December 31, 2005. These entitlements were granted pursuant to our performance share plans 2004 and 2005 and
restricted share plans 2003, 2004 and 2005.
Performance Shares Restricted Shares
Plan
name1
Performance Shares at
Threshold2
number
Performance Shares at
Maximum2
number
Value December
31,20053
EUR
Plan name4
Number of Restricted
Shares
Value December
31, 20055
Jorma Ollila 2004 100 000 400 0003 090
0002004 100 000
1 545
000
2005 100 000 400 0003 090
0002005 100 000
1 545
000
Olli Pekka
Kallasvuo2004 15 000 60 000
463
5002004 35 000
540
750
2005 15 000 60 000463
5002005 70 000
1 081
500
Robert
Andersson2004 2 600 10 400
80
3402004 15 000
231
750
2005 3 000 12 00092
7002005 28 000
432
600
Simon
Beresford Wylie 2003 22 000
339
900
2004 2 500 10 00077
250
2005 15 000 60 000463
5002005 35 000
540
750
Pertti
Korhonen 2003 35 000
540
750
2004 12 500 50 000386
2502004 25 000
386
250
2005 15 000 60 000463
5002005 35 000
540
750
Mary
McDowell 2003 20 000
309
000
2004 12 500 50 000386
250
2005 15 000 60 000463
5002005 35 000
540
750
Hallstein
Moerk 2003 26 000
401
700
2004 7 500 30 000231
7502004 20 000
309
000
83
2005 10 000 40 000309
0002005 25 000
386
250
Tero
Ojanperä2004 2 500 10 000
77
2502004 15 000
231
750
2005 10 000 40 000309
0002005 25 000
386
250
Richard
Simonson 2003 33 250
513
713
2004 12 500 50 000386
2502004 25 000
386
250
2005 15 000 60 000463
5002005 35 000
540
750
Veli
Sundbäck2004 7 500 30 000
231
7502004 20 000
309
000
2005 10 000 40 000309
0002005 25 000
386
250
Anssi
Vanjoki2004 15 000 60 000
463
5002004 35 000
540
750
2005 15 000 60 000463
5002005 35 000
540
750
Kai Öistämö 2003 8 750135
188
2004 2 500 10 00077
2502004 15 000
231
750
2005 3 200 12 80098
8802005 25 000
386
250
Performance
Shares and
Restricted Shares
held by the Group
Executive Board,
Total6, 7
418 800 1 675 20012
940 920 923 000
14
260 350
All
outstanding
Performance
Shares and
Restricted
Shares, Total
8 042 817 32 171 268248
523 045
5 185
676
80
118 694
1 The performance period for the 2004 plan is 2004-2007, with one interim measurement period for fiscal years 2004-2005.
Similarily, the performance period for the 2005 Plan is 2005-2008, with one interim measurement period for fiscal years 2005-2006.2 For the performance share plans 2004 and 2005, the number of performance shares at threshold represents the number of performance
shares granted. This number shall vest as shares, should the pre-determined threshold performance levels of the company be met. The
maximum number of performance shares shall vest as shares, should the predetermined maximum performance levels be met. The
maximum number of performance shares equals four times the number originally granted.
84
3 Value is based on the closing market price of the Nokia share on the Helsinki Stock Exchange as of December 30, 2005 of EUR 15.45. The
value is presented for the target number of shares, which is two times the number at threshold. The target number is used for expensing the
instruments in the company's accounting.4 Restriction period ends for the restricted share plan 2003 on October 1, 2006 (Vesting Date). Vesting Date for the 2004 plan is October 1,
2007, and for the 2005 plan October 1, 2008. 5 Value is based on the closing market price of the Nokia share on the Helsinki Stock Exchange as of December 30, 2005 of EUR 15.45 6 Pekka Ala-Pietilä resigned as member of the Group Executive Board as of October 1, 2005, and ceased employment with us on January
31, 2006.
As of December 31, 2005 he held 35 000 restricted shares from each of the 2004 and 2005 Restricted Share Plans, 20 000 performance
shares at threshold from the 2004 Performance Share Plan and 15 000 performance shares at threshold from the 2005 Performance Share
Plan. He forfeited all his performance shares and restricted shares in accordance with the relevant plan rules. 7 Yrjö Neuvo resigned as member of the Group Executive Board effective October 1, 2005, and retired from Nokia as of December 31, 2005.
As of December 31, 2005 he held 5 000 performance shares at threshold from 2004 Performance Share Plan. He was entitled to keep all his
performance shares and restricted shares in accordance with the relevant plan rules.
Nokia's Equity Based Compensation Programs
For a description of Nokia's equity based compensation programs as of December 31, 2005 to which also members of the
Group Executive Board participate, please see pages 74-75 in "Nokia in 2005".
Equity-based compensation program 2006
The Board of Directors announced its proposed scope and design for the 2006 Equity Program on January 26, 2006. The
main equity instrument in 2006 will be performance shares. In addition, stock options will be granted to a more limited
population, and restricted shares will be used for a small number of high potential and critical employees.
The Performance Share Plan in 2006 will cover a performance period of three years (2006-2008) with no interim
measurement period as compared with the 2004 and 2005 plans with a four-year performance periods and two-year interim
measurement periods. No performance shares will vest unless the company performance reaches at least one of the
threshold levels measured by two independent, pre-defined performance criteria: the company's average annual net sales
growth and earnings per share ("EPS") (basic) growth for 2006 to 2008.
The performance criteria of the Performance Share Plan 2006 are:
1. Average Annual Net Sales Growth: 5% (threshold) and 20% (maximum), and 2. Annual EPS Growth: EUR 0.96 (threshold) and EUR 1.41 in 2008 (maximum).
EPS growth is calculated based on the compounded annual growth rate over the performance period (2006-2008)
compared to 2005 EPS of 0.83. Average Annual Net Sales Growth is calculated as an average of the net sales growth rates
for the years 2005 through 2008. Both the EPS and Average Annual Net Sales Growth criteria are equally weighted and
performance under each of the two performance criteria are calculated independent of each other.
Achievement of the maximum performance for both criteria will result in the vesting of the maximum of 32.6 million Nokia
shares. Performance exceeding the maximum criteria does not increase the number of performance shares that will vest.
Achievement of threshold performance for both criteria, will result in the vesting of 8.15 million shares. If only one of the
85
threshold levels of performance are achieved, only 4.08 million of the performance shares will vest. If none of the threshold
levels are achieved, then none of the performance shares will vest. For performance between the threshold and maximum
performance levels the settlement follows a linear scale. If the required performance levels are achieved, the settlement will
take place in 2009. Until the shares are transferred and delivered, the recipients will not have any shareholder rights, such as
voting or dividend rights associated with these performance shares.
The stock options to be granted in 2006 will be primarily out of the Stock Option plan 2005, approved by the Annual General
Meeting, on April 7, 2005. Each stock option would entitle the option holder to subscribe for one newly issued Nokia share.
The share subscription price applicable upon exercise of the stock options will be determined on a quarterly or, subject to the
Board's decision, a monthly basis. The intention is to determine the exercise prices at fair market value. The share
subscription price for each subcategory of stock options to be issued will equal the trade volume weighted average price of
Nokia shares on the Helsinki Stock Exchange for the first whole week of the second month of the calendar quarter (i.e.
February, May, August or November) or, for the monthly priced stock options that are priced monthly, the first whole week of
such calendar month when the subcategory of the stock option has been denominated. The stock options will have a
quarterly staggered vesting schedule. The subcategories of stock options to be issued under the plan will have a life of
approximately five years, with the last of the subcategories expiring as of December 31, 2011.
The restricted shares to be granted under the Restricted Share Plan 2006 will have a three-year restriction period. The
restricted shares will be delivered in 2009, subject to fulfilling the restriction criteria. Shares are not eligible for any
shareholder rights or voting rights during the restriction period, until transferred to plan participants.
The maximum number of intended grants under the 2006 Equity Program (i.e. performance shares, stock options and
restricted shares) are depicted in the table below. The intended amounts for 2006 are in line with those approved and
disclosed in 2005.
Number of planned grants in 2006 (number, millions)
Plan type Annual grants 2006Recruitment and
special retention needsTotal
Stock options 8.90 7.90 16.80
Restricted Shares 2.30 7.20 9.50
Performance Shares at Threshold1 4.50 3.65 8.15
1 The maximum number of shares to be delivered at maximum performance is four times the number originally granted
(at threshold).
As of December 31, 2005, the total dilution effect of Nokia's stock options, performance shares and restricted shares
currently outstanding, assuming full dilution, is approximately 4.2 % in the aggregate. The potential maximum effect of the
proposed new program, including the impact of the equity grants in connection with the acquisition of Intellisync Inc., would
be approximately another 1.4%.
Stock Ownership Guidelines for Executive Management
86
One of the goals of our long-term equity based incentive program is to focus executives on building value for shareholders. In
addition to granting them stock options, performance shares and restricted shares, we also encourage stock ownership by
our top executives. In January 2001, we introduced a stock ownership commitment guidelines with minimum
recommendations tied to annual base salaries. For the members of the Group Executive Board, the recommended minimum
investment in our shares corresponds to two times the member's annual base salary. For Mr. Kallasvuo, who has already
met this requirement as of the end of 2005, the Board of Directors has set a new recommended minimum ownership
guideline of three times his annual base salary. To meet this requirement, all members are expected to retain after-tax equity
gains in shares until the same minimum investment level is met.
Insiders' Trading in Securities
The Board of Directors has established a policy in respect of insiders' trading in Nokia securities. Under the policy, the
holdings of Nokia securities by the primary insiders (as defined in the policy) are public information, which is available in the
Finnish Central Securities Depositary and on the company's website. As well, both primary insiders and secondary insiders
(as defined in the policy) are subject to a number of trading restrictions and rules, including among other things, prohibitions
on trading in Nokia securities during the three-week "closed window" period immediately preceding the disclosure of our
quarterly results and the four-week "closed window" period immediately preceding the disclosure of our annual results. In
addition, Nokia may set trading restrictions based on participation in projects. We update our insider trading policy from time
to time and monitor our insiders' compliance with the policy on a regular basis. Nokia's Insider Policy is in line with the
Helsinki Stock Exchange Guidelines for Insiders and also sets requirements beyond these guidelines.
Group Executive Board
At December 31, 2005, Nokia had a Group Executive Board consisting of 12 members. Of the Group
Executive Board members, Sari Baldauf and J. T. Bergqvist ceased employment with us and resigned
as members of the Group Executive Board with effect from January 31, 2005. Pekka Ala-Pietilä and
Yrjö Neuvo resigned as members of the Group Executive Board with effect from October 1, 2005, and
their employment ceased with us on December 31, 2005 for Dr. Neuvo, and January 31, 2006 for Mr.
Ala-Pietilä.
The following persons were appointed as new members to the Group Executive Board effective in
2005: Tero Ojanperä was appointed a member effective January 1, 2005, Simon Beresford-Wylie
from February 1, 2005, Robert Andersson and Kai Öistämö were appointed members with effect from
October 1, 2005.
The following tables summarize the aggregate cash compensation paid and the long-term equity-based
incentives granted to the members of the Group Executive Board, including Jorma Ollila, Chairman
87
and CEO, for the year 2005. It also shows the long-term equity-based incentives granted in the
aggregate under our equity plans in 2005.
During 2005, there were no gains realized upon exercise of stock options to report, nor were any
share-based incentive grants settled for the members of the Group Executive Board.
Cash compensation to the Group Executive Board for 2005
Year Number of members Dec. 31, 2005Base salaries
EUR
Cash incentive payments1,2 EUR
2005 12 6 153 4223 8 531 1803
1 Includes payments pursuant to cash incentive arrangements for the 2005 calendar year. The cash incentives are paid as a
percentage of annual base salary based on Nokia's short-term cash incentive plan.
2 Excluding any gains realized upon exercise of stock options.
3 Includes base pay and bonuses to Sari Baldauf and J.T. Bergqvist for the period until January 31, 2005, and to Pekka Ala-Pietilä and Yrjö
Neuvo until September 30, 2005. The new members entering the Group Executive Board, in 2005, Simon Beresford Wylie, Kai Öistämö
and Robert Andersson, are included for the period of their service in 2005. Tero Ojanperä joined the Group Executive Board effective
January 1, 2005, so his cash compensation is fully included.
Long-term equity-based incentives granted in 2005 1
Group
Executive BoardOther
employeesTotal
Total number of participants
Performance shares at threshold2 (number) 241 000 4 228 000
4 469
00012 600
Stock options (number) 1 121 000 7 431 0008 552
0004 200
Restricted shares (number) 508 000 2 509 0003 017
000300
1 The equity-based incentive grants are generally forfeited, if the upon such performance and other conditions, as determined in the
relevant plan rules.
2 At maximum performance, the settlement amounts to four times the number of performance shares originally granted (at threshold).
Summary Compensation Table
Long term Equity based Incentives Granted1
88
Name and PrincipalPosition in 2005
Year
Performance Shares at
Threshold3 number
Performance Shares at
Maximum3 number
Fair Value at
grant4 EUR
Jorma Ollila 2005 100 000 400 0002 370
000
Chairman and CEO 2004 100 000 400 0002 116
000
2003 - - -
Pekka Ala Pietilä7 2005 15 000 60 000 355 500
Until October 1, 2005, President of Nokia
Corporation and Head of Customer and Market
Operations
2004 20 000 80 000 423 200
2003 - - -
Olli Pekka Kallasvuo 2005 15 000 60 000 355 500
As of October 1, 2005, President and
COO; Until September 30, 2005, EVP and
General Manager of Mobile Phones
2004 15 000 60 000 317 400
2003 - - -
Anssi Vanjoki
EVP and General Manager of Multimedia2005 15 000 60 000 355 500
Richard Simonson
EVP, Chief Financial Officer2005 15 000 60 000 355 500
Name and Principal Position in 2005
YearStock
Options number
Fair Value at grant5(EUR)
Restrictred Shares number
Fair Value at grant5(EUR)
Jorma Ollila, Chairman and
CEO
2005
2004
2003
400 000
400 000
800 000
982 675
1 035 775
2 773 442
100 000
100 000
-
1 205 000
1 570 000
-
Pekka Ala-Pietilä7,
Until October 1, 2005, President of
Nokia Corporation and Head of
Customer and Market Operations
2005
2004
2003
60 000
80 000
170 000
147 401
207 155
589 356
35 000
35 000
-
421 750
549 500
-
Olli Pekka Kallasvuo,
As of October 1, 2005, President
and COO; Until September 30,
2005, EVP and General Manager of
Mobile Phones
2005
2004
2003
160 000
60 000
120 000
407 197
155 366
416 016
70 000
35 000
-
932 050
549 500
-
Anssi Vanjoki, EVP and
General Manager of Multimedia2005 60 000 155 366 35 000 421 750
Richard Simonson, EVP, 2005 60 000 155 366 35 000 421 750
89
Chief Finacial Officer
7 Pekka Ala-Pietilä served as the President of the company and member of the Group Executive Board until he resigned from these
positions effective October 1, 2005. As of this date Mr. Ala-Pietilä held the role of Executive Advisor until January 31, 2006, when he
ceased employment with us. For 2006, based on these advisory services, Mr. Ala-Pietilä received a total payment of EUR 101 717. Based
on the service contract, Mr. Ala-Pietilä is entitled to receive a payment of EUR 956 000 in 2006 for his commitments during 2006.
8 The amount includes EUR 9 646 company contribution to 401(k), EUR 4 816 company contribution to Restoration and Deferral Plan and
EUR 344 324 provided as benefits under Nokia relocation policy.
* Each executive listed received benefits and perquisites in 2005 not exceeding the lesser of EUR 50 000 or 10% of the executives total
compensation.
Pension arrangements for the members of the Group Executive Board
The members the Group Executive Board in 2005 participate in the local retirement programs applicable to employees in
the country where they reside. Executives in Finland participate in the Finnish TEL pension system, which provides for a
retirement benefit based on years of service and earnings according to the prescribed statutory system. Under the Finnish
TEL pension system, base pay, incentives and other taxable fringe benefits are included in the definition of earnings,
although gains realized from equity are not. The Finnish TEL pension scheme provides for early retirement benefits at age
62. Standard retirement benefits are available from ages 63 through 68, according to an increasing scale.
Executives in the United States participate in Nokia's Retirement Savings and Investment Plan. Under this 401(k) plan,
participants elect to make voluntary pre-tax contributions that are 100% matched by the company up to 6% of eligible
earnings. The company makes an additional annual discretionary contribution of up to 2% of eligible earnings. In addition
for participants earning in excess of the eligible earning limit, the company offers an additional Restoration and Deferral
Plan. This plan allows employees to defer up to 50% of their salary and 100% of their bonus into a non-qualified plan. The
company also makes an annual discretionary contribution to this non-qualified plan of up to 2% of the earnings above
401(k) eligibility limits.
Simon Beresford-Wylie participates in the Nokia International Employee Benefit Plan (NIEBP). The NIEBP is a defined
contribution retirement arrangement provided to some Nokia employees on international assignments. The contributions to
NIEBP are funded two-thirds by Nokia and one-third by the employee. Because Mr. Beresford-Wylie also participates in the
Finnish TEL system, the company contribution to NIEBP is 1.3% of annual earnings.
Jorma Ollila and Olli-Pekka Kallasvuo can as part of their service contract retire at age 60 with full retirement benefit, should
they be employed by Nokia at the time. The full retirement benefit is calculated, as if the executive had continued his service
with Nokia through the statutory retirement age of 65.
Mr. Ollila's service contract will terminate as of June 1, 2006. Following the current contract, he will not be eligible to receive
any additional retirement benefits from Nokia after that date. Pekka Ala-Pietilä had an equal retirement arrangement during
his employment at Nokia and he will not receive any additional retirement benefits from Nokia after termination of
employment.
90
Hallstein Moerk, following his arrangement with a previous employer, has a retirement benefit of 65% of his pensionable
salary beginning at the age of 62. Early retirement is possible at the age of 55 with reductions in benefits.
Service Contract of the Chairman and CEO, of the President and COO, and of the former President
We have a service contract with each of Jorma Ollila and Olli-Pekka Kallasvuo.
Jorma Ollila's contract covers his current position as Chairman and CEO, and Chairman of the Group Executive Board. Mr.
Ollila's employment will come to an end on June 1, 2006 based on his request as a result of which the Board of Directors
has released him from his duties as CEO and Chairman of the Group Executive Board from that date. As of June 1, 2006,
his service contract will terminate without any severance or other payments by Nokia. Thereafter, he will no longer be
eligible for incentives, bonuses, stock options or other equity grants from Nokia. He will be entitled to retain all vested and
unvested stock options and other equity compensation granted to him prior to June 1, 2006. Further, following his current
contract, he will not be eligible to receive any additional retirement benefits from Nokia.
Olli-Pekka Kallasvuo's contract covers his current position as President and COO, and his future position as President and
CEO, and Chairman of the Group Executive Board, as from June 1, 2006. Mr. Kallasvuo's annual total gross base salary,
which is subject to an annual review by the Board of Directors, is EUR 750 000 starting from October 1, 2005, and will be
EUR 1 000 000 from June 1, 2006. His incentive targets under the Nokia short-term incentive plan are 125% starting from
October 1, 2005 and will be 150% from June 1, 2006. In case of termination by Nokia for reasons other than cause,
including a change of control, Mr. Kallasvuo is entitled to a severance payment of up to 18 months of compensation (both
annual total gross base salary and target incentive). In case of termination by Mr. Kallasvuo, the notice period is 6 months
and he is entitled to a payment for such notice period (both annual total gross base salary and target incentive for 6
months). Mr. Kallasvuo is subject to a 12-month non-competition obligation after termination of the contract. Unless the
contract is terminated for cause, Mr. Kallasvuo may be entitled to compensation during the non-competition period or a part
of it. Such compensation amounts to the annual total gross base salary and target incentive for the respective period during
which no severance payment is paid. Mr. Kallasvuo is entitled to a full statutory pension from the date he turns 60 years of
age, instead of the statutory age of 65.
During 2005, we also had a service contract with Pekka Ala-Pietilä, who acted as President until October 1, 2005.
Thereafter he acted as Executive Advisor until termination of employment on January 31, 2006. Mr. Ala-Pietilä's contract
had provisions for severance payments for up to 18 months of compensation (both base compensation and bonus) in the
event of termination of employment for reasons other than cause.
Share ownership
The following section describes the ownership, or potential ownership interest in the Company of the members of our Board
of Directors and the Group Executive Board, either through share ownership or through holding of equity based incentives,
which may lead to a share ownership in the future. The members of the Board of Directors do not receive stock options or
any other form of variable pay from the company, with the exception of Jorma Ollila, Chairman and CEO. His holdings of
equity based incentives are accounted for below under the Group Executive Board.
91
Daniel R. Hesse and Edouard Michelin were elected as new members to the Board of Directors by the Annual General
Meeting on April 7, 2005.
Of the Group Executive Board members, Sari Baldauf and J.T. Bergqvist ceased employment with us and resigned from the
Group Executive Board with effect from January 31, 2005. Pekka Ala-Pietilä and Yrjö Neuvo resigned from the Group
Executive Board with effect from October 1, 2005. Ala-Pietilä served as an Executive advisor for Nokia from October 1,
2005 until January 31, 2006, while Yrjö Neuvo retired at the end of 2005.
The following persons were appointed as new members to the Group Executive Board effective in 2005: Tero Ojanperä was
appointed member with effect from January 1, 2005, Simon Beresford-Wylie from February 1, 2005, Robert Andersson and
Kai Öistämö effective October 1, 2005.
92
Appendix - Group Executive Board BiographiesBiography of Simon Beresford-Wylie
Simon is a results-oriented business leader, with a passion for the industry, the
customer, and execution excellence. He has a reputation as a strong leader,
people manager and communicator. He holds the Nokia values dearly and is
committed to guiding Networks and its people to the goal of becoming the world’s
leading enabler of mobility.
Before joining Nokia, Simon was Chief Executive Officer of Indian mobile
operator Modi Telstra (Pte. Ltd.), a joint venture between Australia’s Telstra
Corporation and Modicorp of India. As CEO, Simon oversaw the successful start-
up of one of India’s first GSM operators. Prior to that, Simon held various
management positions within Telstra’s Corporate and Government Business Unit.
Before entering the private sector, Simon worked for Australian government
agencies responsible for taxation and for industry policy.
He holds degrees in economic geography and history from the Australian
National University and is a graduate of the Executive Development Program of
Stanford University/National University of Singapore.
Simon was born on May 18, 1958, in the United Kingdom. He is a dual UK-
Australian citizen, is married and has two children. In his spare time, he enjoys
traveling, philately, and collecting art and antiques.
Biography of Mary T. McDowell
As Executive Vice President and General Manager, Enterprise Solutions, Mary T.
McDowell oversees Nokia's Enterprise Solutions business group. In this capacity
Mary is responsible for development, manufacturing and customer engagement
for Nokia's complete line of enterprise products and solutions, which includes its
mobile business device range as well as security and mobile connectivity
solutions.
Mary accepted her current position at Nokia in 2004. Prior to joining Nokia,
Mary held the position of senior vice president of Strategy and Corporate
Development at Hewlett Packard, where she was responsible for the company's
93
overall strategic planning process. As part of the strategy charter, she was in
charge of HP's business portfolio, major initiatives around new markets or new
products, and the valuation, negotiation and execution of all corporate
development activities across HP. She also led the corporate investment activity
including minority equity, acquisitions, divestitures and venture activities.
A 17-year veteran of HP-Compaq, Mary has an impressive track record of
success in building new business and is widely respected as an industry
innovator. At HP-Compaq she served for five years as Senior Vice President and
General Manager of Industry-Standard Servers, a $7 billion business and the
world's largest server franchise.
In this role, Mary had worldwide P&L responsibility for HP's ProLiant server
business, which held the number one position in a highly competitive market for
over a decade. She also led HP-Compaq's expansion into new technology areas
as well as business model transformation. Previous assignments include vice
president of marketing for the server products division, director of strategic
planning and director of systems product marketing. She joined Compaq as a
systems engineer in 1986.
Mary has been a member of the Group Executive Board of Nokia since 2004.
Among her many credentials, Mary was named one of the Top 20 Women in
Technology in Houston in 2000. She serves on the Board of Visitors for the
College of Engineering at the University of Illinois.
Mary was born on July 23, 1964. She holds a bachelor's degree in computer
science from the University of Illinois.
Biography of Hallstein Moerk
As Executive Vice President, Hallstein Moerk has global responsibility for all
human resources activity including employee development, management and
leadership development, compensation, benefits, staffing and global diversity.He
also acts as the 'hosting manager' for Workplace Resources. This role involves
helping Workplace Resources achieve their goals by being a discussion partner
for WR Vice President Mark Tamburro and his leadership team.
He accepted the position of Senior Vice President in 1999 after a 22-year career
94
at Hewlett-Packard. There he moved through various positions from Controller,
Hewlett-Packard A/S Norway, to Managing Director, European Multicountry
Region. Prior to this Hallstein held different positions at Texas Instruments in
Denmark and Norway.
Hallstein has been a member of the Group Executive Board of Nokia since 2004.
He holds a "Diplomekonom" degree from the Norwegian School of Management.
Hallstein was born on September 26, 1953, in Halden, Norway. He is married
and has three children. In his spare time, he enjoys sailing and outdoor activities
especially in the rough Scandinavian terrain.
Biography of Tero Ojanperä
As Executive Vice President and Chief Technology Officer, Tero Ojanperä is
responsible for corporate and technology strategy, strategic alliances and
partnerships, research, standardization, intellectual property rights, venturing,
Mobile Software sales and marketing, Forum Nokia developer activities, business
infrastructure and Industry Relations.
Tero has played a defining role in the research and development work of Nokia’s
business groups since joining the company in 1990 as a research engineer within
Nokia’s Oulu mobile operations.
Throughout his career Tero has consistently shown an ability to balance the
strong elements of his scientific background with Nokia’s broader business
strategies. During 2002-2004 he headed Nokia Research Center, a corporate
research unit driving Nokia’s technological competitiveness and renewal. Prior to
this role, he held several senior management positions in Nokia Networks.
He has been a member of the Group Executive Board of Nokia from January
2005.
A highly respected authority on radio access technologies, Tero spearheaded
several radio systems research efforts around wideband CDMA, GSM and US
TDMA mobile protocols within Nokia. He also led industry-wide radio interface
research and standardization projects and initiatives, including the EU 4th
Framework Program project (FRAMES), which laid the foundation for today’s
third-generation (3G) technologies.
95
Tero is the Chairman of Nokia Foundation, supporting the development of
scientific competence and educational capabilities in information and
telecommunications technologies. He has held positions on several technology
organizations and committees.
He is a highly respected industry commentator and author of the book "WCDMA
for Third Generation Mobile Communications" (1998) and its second edition
"WCDMA: Towards IP Mobility and Mobile Internet" (2001). He has also
authored several conference and journal papers and contributed chapters to
industry reference works including "The Mobile Communications Handbook,
second edition" (1999).
He holds a master’s of science degree from the University of Oulu, Finland and a
Ph.D degree from Delft University of Technology, The Netherlands.
Tero was born Nov 12, 1966, in Korsnäs, Finland. He is married and has three
children. In his spare time, he enjoys reading, sports and spending time with his
family.
Biography of Niklas Savander
As Executive Vice President, Technology Platforms, and a member of the Nokia
Group Executive Board, Niklas Savander is responsible for delivery of software
and technology modules to Nokia's mobile device business groups and external
customers. In addition his organization is chartered with technology management
and product creation processes development across the company.
Savander is a member of the Group Executive Board of Nokia effective April
2006.
Savander joined Nokia in 1997 and has held a variety of senior business
management, strategy, sales and marketing positions covering the device and
network businesses. In 2003, Savander was appointed Senior Vice President,
Mobile Devices Business Unit, Enterprise Solutions.
Prior to joining Nokia, Savander spent nine years with Hewlett-Packard in
Finland, Germany and Switzerland. During this time, he held roles ranging from
the position of account manager to finally lead the company's Technical Systems
Business for Europe, Middle East & Africa.
96
Savander serves on the boards of Symbian Ltd. and Tamfelt Oyj. He is also a
member of the board and secretary of Waldemar von Frenckells Stiftelse.
He holds a Master's degree in Science from the Helsinki University of Technology
and a Master's of Business Administration from the Swedish School of Economics
and Business Administration in Helsinki. He is fluent in Swedish, English,
German and Finnish.
Savander was born August 4, 1962, in Helsinki, Finland. He is married and has
two children. In his spare time, he enjoys playing and refereeing ice-hockey,
telemark skiing and golf.
Biography of Richard A. Simonson
As Executive Vice President and Chief Financial Officer, Richard A. Simonson
has responsibility for group Finance and Control, Treasury, Investor Relations,
Customer Finance, Risk Management and Assurance, Mergers & Acquisitions
and Operating Resource Sourcing.
Rick joined Nokia in 2001 as Vice President, Head of Customer Finance,
negotiating and monitoring financial exposures and was responsible for finding
third-party financing solutions for Nokia customers. In this capacity Rick was
also instrumental in Nokia's worldwide effort to assure the financial strength and
flexibility of its four business groups going forward, while simultaneously serving
the best interests of Nokia shareholders.
Prior to joining Nokia, Rick held the key position of Managing Director, Telecom
& Media Investment Banking Group, San Francisco, at Barclays Capital. Before
this Rick spent 16 years at Bank of America Securities, where he climbed the
career ladder and was appointed Managing Director & Head of Global Project
Finance, Global Corporate & Investment Bank, San Francisco and Chicago, in
1999.
Rick has been a member of the Group Executive Board of Nokia since 2004.
He holds a bachelor's degree in science and mining engineering from the
Colorado School of Mines, and a master's degree in business administration and
finance from the Wharton School of Business at the University of Pennsylvania,
Philadelphia.
97
Rick was born August 25, 1958, in Middletown, Ohio, USA. He is married and
has five children. In his spare time, he enjoys jogging, golf and downhill skiing.
Biography of Veli Sundback
As Executive Vice President, Corporate Relations and Responsibility, Veli
Sundbäck heads up Nokia's government and public affairs function, and Nokia
initiatives aimed at achieving sustainable development and providing access and
technology to emerging markets.
Moreover, Veli is dedicated to advancing Nokia's profile as a good corporate
citizen and shaping the policies that allow Nokia to function as a successful
business and socially responsible company.
Veli joined Nokia in 1996 after a distinguished diplomatic career spanning over
25 years. Prior to accepting his current position at Nokia, Veli held various
ministry positions in Helsinki, Brussels and Geneva, including Under-Secretary of
State for External Economic Relations at the Ministry for Foreign Affairs, 1990 to
1993, and Secretary of State at the Ministry for Foreign Affairs, 1993 to 1995. He
was also chief negotiator for Finland's accession to the European Union.
During his years at Nokia, Veli has been instrumental in Nokia's efforts to ensure
open competition and standards. He has served as a member of the Board of
EICTA (the European Information and Communication Technology Industry
Association), where he was well positioned to observe and influence telecom
regulations.
Veli has been a member of the Group Executive Board of Nokia since 1996. He is
chairman of the Supervisory Board of Nokia (Deutschland) GmbH, Board
Member of Finnair, a Finnish airline company, chairman of the Finland-China
Trade Association, member of the Board and its executive committee of the
Confederation of Finnish Industries (EK) and member of the Board and its
executive committee and vice chairman of Technology Industries of Finland. He is
also a Member of the Board of Trustees of WWF Finland.
Veli is decorated with many titles including Commander, 1st Class of the Order of
the White Rose of Finland, Commander of the Order of the Lion of Finland,
Commander, 1st Class of the Order of the Isabel Catholic, Spain, Grand Cross of
98
the Order of Danneborg, Denmark, Grand Cross of the Order of Orange-Nassau,
Netherlands, Grand Cross of the Order of Merit, Republic of Italy, Grand Cross
with Star and Sash of the Order of Merit, Germany, Grand Officer of the Order of
Infante dom Henrique, Portugal, and Grand Cross of the Order of Phoenix,
Greece.
Veli has a Licentiate in Law from the University of Helsinki. He is a Senior
Lieutenant in the Finnish army.
Veli was born on May 29, 1946, in Helsinki, Finland. He is married and has three
children. In his spare time, Veli enjoys tennis, golf, fishing, reading and "trying to
understand the world better." He is a great admirer of the arts and is a member of
the board of the Finnish National Theatre.
Biography of Anssi Vanjoki
As Executive Vice President and General Manager of Multimedia, Nokia, Anssi
Vanjoki heads a business group that is responsible for offering devices and
content for bringing mobile multimedia to consumers in the form of images,
games, music and a range of other attractive content.
A highly respected brand authority with over 20 years of marketing experience,
Anssi has been a driving force in Nokia's efforts of addressing the mobile markets.
His work has focussed on developing Nokia's brand durability, loyalty and
continuity, while, at the same time, advancing Nokia's vision of a mobile world.
Anssi joined Nokia in 1991 and was named Vice President, Sales, Nokia Mobile
Phones, before his promotion in 1994 to Senior Vice President, Nokia Mobile
Phones Europe and Africa. In 1998 he was made Executive Vice President, Nokia
Mobile Phones Europe and Africa and became a member of the Group Executive
Board of Nokia. In addition, in 1999, Anssi took responsibility for Nokia's Digital
Convergence Unit and, in 2002, also headed up the Business Unit Management.
He was appointed to his present position on January 1st 2004.
Prior to joining Nokia, Anssi held a variety of management positions at 3M
Corporation.
Anssi is the chairman of the board of Amer Group, and was a member of the
Governing Committee of the European Foundation for Quality Management 2001
99
- 2003. He is a Knight, 1st Class, of the Order of the White Rose of Finland.
Anssi holds a master's degree in economics from the Helsinki School of
Economics and Business Administration.
Anssi was born in 1956 in Helsinki, Finland. He is married and has three
children. In his spare time, Anssi enjoys basketball and is a member of Finland's
Harley Davidson owners' club. He also likes to spend time in the countryside with
his family.
Biography of Dr. Kai Öistämö
As Executive Vice President and General Manager of Mobile Phones Kai heads
the business group of Nokia, which offers a world-leading range of mobile phones
for large consumer segments.
Kai joined Nokia Consumer Electronics in 1991, and during 1991-1995 he held a
number managerial and technical positions, including being stationed in the key
markets of France and Germany.
In 1995 Kai was appointed Product Manager, Nokia Mobile Phones, where he
was involved with the introduction of several Nokia classic category phones. In
1997, Kai was promoted to Vice President TDMA Business Line, the major
mobile technology for key markets in the Americas. In 2002 Kai was named
Senior Vice President, Nokia Mobiles Phones, overseeing the Mobile Phones
business unit.
In January 2004 he was appointed Senior Vice President, Business Line
Management, within the Mobile Phones business group. In this role, he has had a
global business responsibility for a unit that defines, develops and markets
products to GSM and WCDMA markets.
Kai holds a Doctorate degree in technology and a Master of Science degree in
Engineering from the Tampere University of Technology.
Kai was born on September 29, 1964 in Turku, Finland. He is married and has
three children. In his spare time, Kai enjoys various sports including tennis,
skiing and golf.
100
Appendix – Biographies of the Directors of NokiaChairman JORMA OLLILA
Chairman of the Board of Directors, Nokia Corporation since 1999. Member
since 1995.
Chairman of the Board of Directors of Royal Dutch Shell Plc.
Chairman and CEO, Chairman of the Group Executive Board of Nokia
Corporation 1999-2006, President and CEO, Chairman of the Group Executive
Board of Nokia Corporation 1992-1999, President of Nokia Mobile Phones 1990-
1992, Senior Vice President, Finance of Nokia 1986-1989. Holder of various
managerial positions at Citibank within corporate banking 1978-1985.
Member of the Board of Directors of Ford Motor Company, Vice Chairman of the
Board of Directors of UPM-Kymmene Corporation, Vice Chairman of the Board
of Directors of Otava Books and Magazines Group Ltd. Chairman of the Boards
of Directors and the Supervisory Boards of Finnish Business and Policy Forum
EVA and The Research Institute of the Finnish Economy ETLA. Chairman of The
European Round Table of Industrialists.
Vice Chairman PAUL J. COLLINS
Vice Chairman of the Board of Directors, Nokia Corp since 2000. Board
member since 1998.
Vice Chairman of Citigroup Inc. 1998-2000, Vice Chairman and member of the
Board of Directors of Citicorp and Citibank N.A. 1988-2000. Holder of various
executive positions at Citibank within investment management, investment
banking, corporate planning as well as finance and administration 1961-1988.
Member of the Boards of Directors of BG Group and The Enstar Group, Inc.
Member of the Supervisory Board of Actis Capital LLP.
GEORG EHRNROOTH, Board Member since 2000
Member of the Personnel Committee and the Audit Committee.
President and CEO of Metra Corporation 1991-2000, President and CEO of
Lohja Corporation 1979-1991. Holder of various executive positions at
Wärtsilä Corporation within production and management 1965-1979.
101
Chairman of the Board of Directors of Sampo plc. Vice Chairman of the Board of
Directors of Rautaruukki Corporation, member of the Board of Directors of Oy
Karl Fazer Ab and Sandvik AB (publ). Vice Chairman of the Boards of Directors
of The Research Institute of the Finnish Economy ETLA and Finnish Business and
Policy Forum EVA.
DANIEL R. HESSE, Board Member since 2005
Chairman and Chief Executive Officer EMBARQ Corporation
CEO of Sprint Communication, Local Telecommunications Division 2005-
2006, Chairman, President and CEO of Terabeam 2000-2004, President and
CEO of AT&T Wireless Services 1997-2000, Executive Vice President of AT&T
1997-2000. Various managerial positions in AT&T, 1977-1997.
Member of the Board of Directors of VF Corporation. Member of the National
Board of Governors of the Boys & Girls Clubs of America.
DR. BENGT HOLMSTROM, Board Member since 1999
Paul A. Samuelson Professor of Economics at MIT, joint appointment at
the MIT Sloan School of Management.
Member of the Board of Directors of Kuusakoski Oy. Member of the
American Academy of Arts and Sciences and Foreign Member of The Royal
Swedish Academy of Sciences.
PER KARLSSON, Board member since 2002
Independent Corporate Advisor
Executive Director, with mergers and acquisitions advisory
responsibilities, at Enskilda M&A, Enskilda Securities (London) 1986-1992,
Corporate strategy consultant at the Boston Consulting Group (London) 1979-
1986.
Board member of IKANO Holdings S.A.
DAME MARJORIE SCARDINO, Board Member since 2001
Chief Executive and member of the Board of Directors of Pearson plc.
Chief Executive of The Economist Group 1993-1997, President of the
North American Operations of The Economist Group 1985-1993, lawyer
1976-1985 and publisher of The Georgia Gazette newspaper 1978-1985.
102
KEIJO SUILA, Board Member since 2006
President and CEO of Finnair Oyj 1999-2005. Holder of various executive
positions, including Vice Chairman and Executive Vice President, at Huhtamäki
Oyj, Leaf Group and Leaf Europe during 1985-1998. Chairman of oneworld
airline alliance 2003-2004 and member of various international aviation and air
transportation associations 1999-2005.
Vice Chairman of the Board of Directors of Kesko Corporation, and Vice
Chairman of the Supervisory Board of the Finnish Fair Corporation.
VESA VAINIO, Board Member since 1993
Chairman 1998-1999 and 2000-2002 and Vice Chairman 1999-2000 of
the Board of Directors of Nordea AB (publ), Chairman of the Executive
Board and CEO of Merita Bank Ltd and CEO of Merita Ltd 1992-1997. President
of Kymmene Corporation 1991-1992. Holder of various other executive positions
in Finnish industry 1972-1991.
Chairman of the Board of Directors of UPM-Kymmene Corporation.
103
Appendix – Committees of the Board of Directors
Audit Committee
The Audit Committee is established by the Board primarily for the purpose
of overseeing the accounting and financial reporting processes of the company
and audits of the financial statements of the company. The Committee is
responsible for assisting the Board's oversight of (1) the quality and integrity
of the company's financial statements and related disclosure, (2) the external
auditor's qualifications and independence, (3) the performance of the external
auditor subject to the requirements of Finnish law, (4) the performance of the
company's internal controls and risk management and assurance function, and
(5) the company's compliance with legal and regulatory requirements. The
Committee also maintains procedures for the receipt, retention and treatment
of complaints received by the company regarding accounting, internal
controls, or auditing matters and for the confidential, anonymous submission
by employees of the company of concerns regarding accounting or auditing
matters.
Under Finnish law, our external auditor is elected by our shareholders at the
Annual General Meeting. The Committee makes a recommendation to the
shareholders in respect of the appointment of the external auditor based upon
its evaluation of the qualifications and independence of the auditor to be
proposed for election or re-election. The Committee meets at least four times
per year based upon a schedule established at the first meeting following the
appointment of the Committee. The Committee meets separately with the
representatives of Nokia's management and the external auditor at least twice
a year. The Audit Committee convened five times in 2005.
Personnel CommitteeThe primary purpose of the Personnel Committee is to oversee the personnel
policies and practices of the company. It assists the Board in discharging its
104
responsibilities relating to all compensation, including equity compensation, of
the company's executives and the terms of employment of the same. The
Committee has overall responsibility for evaluating, resolving and making
recommendations to the Board regarding (1) compensation of the company's top
executives and their employment conditions, (2) all equity based plans, (3)
incentive compensation plans, policies and programs of the company affecting
executives, and (4) other significant incentive plans. The Committee is responsible
for ensuring the above compensation programs are performance based, properly
motivate management, support overall corporate strategies and are aligned with
shareholders' interests. The Committee is responsible for the review of senior
management development and succession plans. The Personnel Committee
convened three times in 2005.
Corporate Governance and Nomination CommitteeThe Corporate Governance and Nomination Committee's purpose is (1) to
prepare the proposals for the general meetings in respect of the composition of
the Board along with the director remuneration to be approved by the
shareholders, and (2) to monitor issues and practices related to corporate
governance and to propose necessary actions in respect thereof.
The Committee fulfills its responsibilities by (i) actively identifying individuals
qualified to become members of the Board, (ii) recommending to the shareholders
the director nominees for election at the Annual General Meetings, (iii)
monitoring significant developments in the law and practice of corporate
governance and of the duties and responsibilities of directors of public
companies, (iv) assisting the Board and each committee of the Board in its annual
performance self-evaluations, including establishing criteria to be used in
connection with such evaluations, and (v) developing and recommending to the
Board and administering the Corporate Governance Guidelines of the company.
The Corporate Governance and Nomination Committee convened three times in
2005.
105